Doubts About Wolverine World Wide's Top-Line Appear To Be Lifting, Analyst Upgrades

Following Wolverine World Wide, Inc.'s WWW first-quarter results last week and Baird's travel with the management in Europe, the firm said its doubts regarding top-line fundamentals appear to be lifting. Accordingly, the firm upgraded the stock.

Analyst Jonathan Komp noted he has been on the sidelines since September 2015 due to low short-term visibility to the sales/earnings outlook. However, he is encouraged by Wolverine's aggressive transformation actions over the past 12 months. This, according to the analyst, has improved the margin outlook.

The analyst also noted the actions have borne fruit in the form of a 30 percent increase in first-quarter earnings per share, excluding currency, on a 2 percent decline in underlying revenues.

"We increasingly are impressed by actions to become more consumer-centric, which have the potential to re-ignite top-line growth for WWW's portfolio of well-positioned brands (especially Merrell, Saucony) later in 2017 and into 2018 (targeting sales +mid-single-digits)," Baird said.

Giving out the key aspects of its view, Baird said:

• It sees a clear pathway to 12 percent EBIT margin by 2018 even if there is no growth, thanks to restructuring, store closings and other initiatives. Upside is likely if the top line grows.
• A consumer-centric approach is adopted to achieve sales growth through compelling innovation and improved speed to the market.
• The firm termed its call as a contrarian one, given that only three of the 14 other sell-side analysts have a Buy rating on the stock. The firm also noted short interest is up 28 percent year-to-date.

Risk-Reward Attractive At Current Levels

Baird is now convinced of the company's margin or EPS recovery opportunity. The firm thinks the company can deliver EPS of at least $1.80 in 2018 after the company revised up its 2017 guidance to $1.50-$1.60.

Additionally, Baird is optimistic a potential top-line inflection is possible over the next six to 12 months. Accordingly, the firm sees the risk-reward attractive at currently levels.

As such, Baird increased its rating on Wolverine to Outperform and raised its price target to $30 from $29.

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