Skechers (SKX) stock rose 4.0% at 3:27 pm ET today as Deutsche Bank initiated coverage with a “buy” rating. Deutsche Bank assigned a price target of $49 for the footwear maker’s stock. This price target implies that it sees upside potential of over 18% compared to the closing price on December 17. Skechers stock had a strong run this year and was up 81% year-to-date through December 17.
Skechers has outperformed Nike (NKE), Under Armour, and Columbia Sportswear, which have risen 34.4%, 16.4%, and 12.3%, respectively, this year.
Why Deutsche Bank is bullish about Skechers
According to TheFly, Deutsche Bank believes that Skechers’ dominance in the footwear market and robust growth in its top line over the past eight years have been underappreciated. The company’s direct-to-consumer business and international operations have been its key growth drivers. In the third quarter, Skechers’ sales grew 15.1% YoY (year-over-year) to $1.35 billion and beat Wall Street’s estimate of $1.34 billion.
The footwear maker’s international sales surged 21.9%. The company experienced strength in Germany, the United Kingdom, Spain, India, the UAE, Turkey, China, Russia, and Japan. A 21.7% rise in its international wholesale business and a 22.3% growth in its direct-to-consumer business drove international sales.
Skechers’ international sales contributed 58.8% of its overall third-quarter sales. The company expects momentum in its international business as it continues to expand its footprint and open more retail stores.
Larger rival Nike is also focusing on its international prospects and the higher-margin direct business. Nike plans to declare its Q2 of fiscal 2020 results after the markets close on December 19. Analysts expect Nike’s second-quarter revenue to rise 7.6% YoY to $10.08 billion. They expect its adjusted EPS to increase 11.5% to $0.58.
Skechers’ domestic sales increased 6.7% YoY as its domestic wholesale business grew 5% and its direct-to-consumer business rose 8.7%. The company is trying to boost its domestic sales through aggressive marketing initiatives and expansion of its store network.
Looking at Skechers’ earnings, its third-quarter EPS grew 15.5% YoY to $0.67 but fell short of analysts’ expectations by $0.03. Strong sales growth and improved margins boosted earnings growth, partially offset by currency headwinds.
Majority rate the stock a “buy”
On December 18, UBS raised its price target for Skechers stock to $49 from $48. Currently, a majority of analysts are bullish about the company. Nine out of 12 analysts rate it a “buy” while the remaining have a “hold” rating. None of the analysts currently has a “sell” rating.
With a 12-month price target of $44.27, analysts see a 3% upside potential. The company’s growth prospects and its current valuation level make it an attractive stock.
On December 18, Skechers was trading at a 12-month forward PE (price-to-earnings) ratio of 16.3x. In comparison, Nike, Under Armour, and Columbia Sportswear were trading at higher valuation multiples of 30.8x, 43.5x, and 18.5x.
Analysts expect the company’s 2019 adjusted EPS to rise 17.1% on sales growth of 10.7%. They also predict its 2020 adjusted EPS to grow 13.3% on sales growth of 9.2%.