Steve Madden's Valuation Has Gone A Step Too Far, Wedbush Says In Downgrade

Steve Madden, Ltd. SHOO continues to be a leader in the footwear industry — the brand was named Footwear News' company of the year in 2017 — but its valuation is exceeding guidance, according to Wedbush. 

The Analyst

Wedbush analyst Christopher Svezia downgraded Steve Madden from Outperform to Neutral and raised the price target from $51 to $55.

The Thesis

With shares trading at 20 times fiscal 2018 estimates, Svezia said he's moving to the sidelines on Steve Madden due to valuation. (See the analyst's track record here.) 

Madden’s business remains solid, but the Street has priced in optimism and outrun the footwear maker's guidance, the analyst said.  

“SHOO is typically not a company to beat by a wide margin and has a propensity to reinvest into the business (international), potentially limiting flow-through." 

Madden is well-positioned for success in fiscal 2018 given its on-trend product, quick-turn model and international potential, Svezia said. 

Yet some of the company's opportunities are priced in or "somewhat misplaced," the analyst said, giving Macy’s Inc M and Nordstrom, Inc. JWN's plans to reduce inventory levels as an example. 

The greatest upside driver for Madden would be retailers’ willingness to increase open-to-buy, Svezia said, but the analyst does not forecast this in the near-term.

“We still have confidence in SHOO’s ability to perform, possibly to the high-end of its outlook, and an acquisition could be viewed favorably, though at 20x PE and with Street expectations elevated, we feel it is time to move to Neutral from Outperform." 

Price Action

Steve Madden shares were down 1.25 percent at $53.48 shortly before the close Wednesday. 

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