Piper Jaffray Upgrades Crocs, Notes 'Compelling' Second Half Setup

In a report published Thursday, Piper Jaffray analysts upgraded the rating on Crocs, Inc. CROX from Neutral to Overweight, while raising the price target from $13 to $17, saying that the turnaround is taking hold.

"We like the 2H set-up and see operating margin recovery from the 3.7% rate to the low-double digits over time which should drive over $1.40 in EPS power (ex-conversion)," the analysts said.

In the report Piper Jaffray noted the six prongs to the upgrade as:

• Continued structural improvements in the gross margin, as clogs become a bigger focus
• Support to op margin recovery by SG&A reductions and improvements
• Refreshed marketing to support sales acceleration
• Refined product perspective (new SVP of Global Merchandising, Michelle Poole)
• Recently-assembled, footwear-oriented management team
• Remaining share buybacks worth $182M

"Management noted trends are getting "substantially better" as the weather improves. We see this underlying growth accelerating throughout FY15 as stepped up marketing pays dividends," the analysts wrote.

With cost savings, re-purposed marketing spend, SKU rationalization and new product on the horizon, we like the set up for 2015 and beyond. Underlying sales growth should accelerate in the 2H while margins will benefit as merchandise mix improves," the report added.

The EPS estimate for FY16 has been raised from $0.60 to $0.68.