UPDATE: Morgan Stanley Cuts Skechers USA (SKX) to Equalweight as Styles Shift Toward Adidas-Like Fashion
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(Updated - September 21, 2016 10:16 AM EDT)
Morgan Stanley downgraded Skechers USA (NYSE: SKX) from Overweight to Equalweight with a price target of $25.00 (from $41.00). Analyst Jay Sole noted that consumer's preferred athletic footwear styles are shifting toward pure fashion. As Sketchers adjusts its assortment, he sees slower sales and increasing SG&A. Overall he thinks risk/reward looks balanced.
"The question has been how much of SKX's YTD slowdown has been due to temporary macro factors vs. longer-lasting issues," said Sole. "We think it is more the latter. The shift toward Adidas-like fashion athletic styles and away from Nike-like running SKUs is causing SKX to migrate its product offering faster than expected. This is causing a delay in orders until SKX adjusts."
The analyst added, "At the same time, SKX's global infrastructure investment plans, in order to keep up with rapid international growth, are higher than we previously thought. We see no positive fashion catalysts until 1H17 and expect Street EPS estimates to fall over that time frame. However, with the stock trading at just 12.5x our new FY17 EPS estimate, we think some of this bad news is priced in. Therefore Equal-weight is the correct rating in our view until a new catalyst emerges."
Morgan Stanley's bull case on the stock is $40 and its bear case is $10.
Shares of Skechers USA closed at $23.23 yesterday.
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