On Monday, Barclays initiated coverage on Deckers Outdoor (NYSE:DECK), assigning an Overweight rating to the company's stock with a price target of $1,110. The new rating is based on several key factors, including the growth potential of Deckers' HOKA brand and an improving wholesale inventory environment.
The firm's analysis suggests that HOKA has a considerable opportunity to capture more of the footwear market share as it increases brand awareness from a relatively low starting point. This is expected to drive new customer acquisition. The analyst also noted the potential for HOKA to benefit as a brand that drives traffic and sells at full price, particularly as inventory conditions at wholesalers improve.
Additionally, Barclays predicts expanding margins for Deckers due to a favorable mix of sales channels and geographic markets. The company's return on invested capital (ROIC) is highlighted as the highest within the footwear sector, with expectations for further expansion.
Despite Deckers trading at a premium compared to its historical average and peers, Barclays points out the company's consistent history of surpassing adjusted earnings per share (EPS) quarterly. The firm believes the current valuation reflects the market's expectations for continued earnings growth rather than a simple expansion of the price-to-earnings multiple.
Barclays acknowledges that for Deckers' stock to perform well, the company must significantly exceed earnings estimates. Their survey indicates potential for the company's business to grow beyond the consensus expectations. While recognizing the brand's momentum, Barclays also expects Deckers to continue managing the business prudently, aiming for profitable growth in fiscal year 2025.
InvestingPro Insights
Deckers Outdoor (NYSE:DECK) has been the subject of market attention following Barclays' recent Overweight rating. To provide additional context, InvestingPro data shows a robust financial picture that may interest investors. Deckers holds a market capitalization of $24.16 billion, with a P/E ratio standing at 33.99, reflecting investor confidence in its earnings potential. The company's revenue growth is noteworthy, with a 15.34% increase over the last twelve months as of Q3 2024, underscoring the growth potential highlighted by Barclays. Furthermore, Deckers has demonstrated impressive returns, with a 109.38% one-year price total return, indicating strong market performance.
InvestingPro Tips suggest that Deckers is trading at a low P/E ratio relative to near-term earnings growth, which could mean the stock is undervalued given its growth trajectory. Additionally, the company's ability to cover interest payments with its cash flows is a positive sign of financial health. For investors seeking more insights, there are 16 additional InvestingPro Tips available for Deckers, which can be accessed for a deeper dive into the company's financials and market position.
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