Coverage of the shares of this athletic apparel company were just initiated at Macquarie with an ‘Outperform’ rating. The company beat earnings estimates by nine cents last quarter, and nine analysts have raised their 2016 forecasts.
Skechers U.S.A., Inc. (SKX)
From Argus Weekly Staff Report
Skechers USA Inc. (SKX) is a leading maker of athletic shoes and accessories. Our target price is $40.
This well-managed company has a record of consistent growth. Over the past three years, the company has posted compound annual revenue growth of 23% and boosted its net margin from just 0.1% to nearly 10% in 1Q16. Net income and adjusted EPS have also risen strongly.
Looking ahead, our optimism reflects strong gains in the company’s e-commerce business, as well as the addition of 330-340 retail stores in 2016. We also expect the operating margin to continue to improve with help from fewer markdowns and carefully managed costs.
On April 20, Skechers reported 1Q16 EPS of $0.63, up from $0.37 a year earlier and $0.09 above consensus. It also posted revenue and margins that topped consensus forecasts. We are maintaining our 2016 and 2017 estimates of $2.15 and $2.60, respectively. Our long-term EPS growth rate forecast is 20%.
The stock’s valuation multiples are in the lower half of the industry range; however, we think they should be at least in line with the peer average. Our target price of $40 assumes a multiple of 18.6-times our 2016 earnings estimate, which in our view is fair given the company’s record of strong growth.
SKX shares appear attractively valued at current prices above $33, in the lower half of the 52-week range of $25-$55. SKX shares were up recently following strong 1Q16 revenue, earnings and margins.
At current prices, the shares are trading at 15.6-times our 2016 EPS estimate, below the industry average of 20, and at approximately 1.7-times sales, below the industry average of 3.0. We believe the company’s solid growth prospects and the possibility of positive earnings surprises warrant multiples closer to the industry average. Our target of $40 implies a multiple of 18.6-times our 2016 EPS estimate, and a potential gain of about 18% from current levels.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425- 7500, May 6, 2016