Skechers' New Product Cycle Earns An Upgrade

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Shares of Skechers USA Inc SKX rose 16 percent after Buckingham upgraded the stock to Buy on the emergence of a new product cycle, which will debut at retail beginning in the second quarter of 2017.

Skechers has updated its men's and women's products with new materials and better styling in many cases with on-trend knit uppers. Importantly, Skechers has scored a key point on kids’ front with "Energy Lights", which have battery powered light up soles.

“We believe SKX is one quarter away from a potential sales inflection which historically has been a catalyst for the stock as investors prioritize sales momentum over EPS growth by according SKX its highest P/E multiple in the first year of any new cycle,” analyst Scott Krasik wrote in a note.

Krasik noted that since 2005, Skechers has traded at a premium over its last three product cycles in the first year after domestic wholesale sales inflected.

Further, a recent insider trading transaction lends further credence to the bullish thesis. The analyst pointed out that Chairman and CEO, Robert Greenberg, who historically has been a good stock timer (i.e. seller) bought 500,000 shares for $11 million this week, his first buy in 15 years.

“While fundamentals will likely remain under pressure for the next one to two quarters, as we indicated in recent research, SKX ability to reduce inventory after 2Q16 diminishes the risk of another major negative EPS revision in the near-term,” Krasik added.

At last check, shares of Skechers climbed 15.76 percent to $26.37. Krasik raised his price target by $10 to $31.

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsBuckingham ResearchScott Krasik
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