KeyBanc Thinks It's Time To Stop Selling Fossil Stock

In a report published Thursday, KeyBanc Capital Markets analyst Edward Yruma upgraded the rating on

from Underweight to Sector Weight, saying that it was time to "shift gears." Analyst Edward Yruma said that the recent meeting with CEO Kosta Kartsotis and CFO Dennis Secor had given more confident in "the long-term direction of the business." The earlier Underweight rating was based primarily on "the downbeat view on the watch industry," which had not "materially changed." Yruma explained, however, that while the fashion watch environment continued to be tough, Fossil remained dominant, with about 50 percent share in the US. Moreover, the company had "multiple watch and non-watch growth levers, and a HSD FCF yield." In the report KeyBanc Capital Markets noted, "Our most recent checks point to continued challenges; however, our first-hand trial of FOSL's new wearable portfolio supports a generally positive view of the Company's initial foray into that market segment." Since January 10, 2014, Fossil's shares had declined 48 percent, as compared to a 13 percent rise in the S&P and a 35 percent increase in the RLX. Yruma believes that the earnings expectations had been "largely reset" and that the stock's current valuation suggested "rather limited near-term downside, rendering risk-reward balanced in the face of our continued view around headwinds to growth in the traditional watch category."