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Baird's Stock Picks In Footwear And Fitness Amid Brexit Fallout

Baird's Stock Picks In Footwear And Fitness Amid Brexit Fallout
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Baird prefers Nike Inc (NYSE: NKE), Planet Fitness Inc (NYSE: PLNT) and Duluth Holdings Inc (NASDAQ: DLTH) in the apparel, footwear and fitness sectors, despite being concerned about market volatility and political uncertainty raising the risk of a U.S./global recession in the intermediate term.

"Overall, the Outperform-rated stocks we are least concerned about in a range of potential scenarios include NKE (earnings likely insulated, even with above-average Europe exposure), as well as PLNT and DLTH which are domestic businesses with robust secular drivers," analyst Jonathan Komp wrote in a note.

Related Link: Following Brexit, Baird Likes These Auto Stocks

The analyst said the greatest short-term earnings risk for companies with above-average revenue penetration in Europe include the following:

  • adidas AG (ADR) (OTC: ADDYY)
  • VF Corp (NYSE: VFC)
  • Nike
  • Crocs, Inc. (NASDAQ: CROX)
  • Deckers Outdoor Corp (NYSE: DECK)
  • Foot Locker, Inc. (NYSE: FL)
  • Genesco Inc. (NYSE: GCO)
  • Wolverine World Wide, Inc. (NYSE: WWW)

All these companies are estimated to have more than 10 percent revenue mix in Europe.

But What If...

In the event of a U.S./global recession, the analyst sees downside earnings risk for higher-fixed cost retail businesses such as Finish Line Inc (NASDAQ: FINL), Zumiez Inc. (NASDAQ: ZUMZ), Boot Barn Holdings Inc (NYSE: BOOT), Genesco and Foot Locker.

Komp is also concerned on branded apparel/footwear vendors with the lowest existing operating margin including Crocs, Rocky Brands Inc (NASDAQ: RCKY), Deckers and adidas. In addition, high-valuation names like Under Armour Inc (NYSE: UA) and adidas would be exposed in the event of a recession.

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