Today’s news: Skechers (SKX) reports strong fourth quarter results; and price action on Commercial Metals (CMC).
Skechers USA Inc. (SKX) reported fourth quarter diluted EPS of $0.31 yesterday afternoon, far above all analysts’ estimates. In addition, the company raised guidance on first quarter 2019 earnings expectations to a range of $0.70-$0.75 vs. the analysts’ consensus estimate of $0.67.
The quarter featured record sales of $1.08 billion, an 18.4% increase in international wholesale sales and the repurchase of 1.7 million shares. International revenue currently makes up 55.6% of total revenue.
Looking forward, Skechers anticipates another quarter of record sales in first quarter 2019, and strong international growth fueled by joint ventures in India and Mexico and a new distribution center in China. Upon year-end 2018, there was $50 million remaining in the current share repurchase authorization.
Skechers USA is an apparel company that designs and manufactures stylish, affordable footwear for people of all ages. Skechers is the third largest footwear brand globally, behind Nike and Adidas. There are now 2,998 Skechers Company-owned and third party-owned stores.
The stock is up 17% this morning at 32.57. Five investment firms raised their price targets today to a range of 29-35.
I can’t do a good job of describing earnings growth rates right now because (a) all of the earnings estimates will be revised in the coming days and (b) Wall Street analysts have already proven themselves woefully inadequate at projecting such numbers for Skechers. (It’s not unusual for analyst estimates to be inaccurate on small company stocks and/or aggressive growth stocks.) Either way, SKX is not an overvalued stock, so I’m fairly relaxed at the prospect of holding it for many more months.
Here’s what I know: at a share price of 32.57, the stock is up about 48% from its December lows. The stock blew past short-term price resistance today. Today is only the second time since May 2018 that the stock rose to 33. It would be very normal for the stock to rest, while gathering the energy to break past 33.
If you bought SKX for a short-term trade, it’s time to sell. If you’re willing to wait several months to see further gains, then hold your shares. I will probably move SKX to a Buy recommendation after it pulls back to the upper 20’s, presuming that the revised earnings growth outlook remains strong. Hold.
Commercial Metals Company (CMC – yield 3.1%) – The stock has fallen in recent days along with other steel stocks. Earnings projections were revised downward by a small amount in recent days, but CMC is still an aggressive growth stock with a very low P/E and a large dividend yield.
CMC is a volatile small-cap stock, especially subject to volatility based on news reports surrounding international trade negotiations. The stock has fallen toward the bottom of a two-month trading range. Risk-tolerant investors could continue to buy at the current price. Strong Buy.