Deckers (DECK) is No Longer 'UGG'-ly, Shares Still Undervalued - Barron's

June 4, 2012 8:59 AM EDT
Deckers Outdoor (Nasdaq: DECK) shares are indicated for a higher open Monday following a bullish outlook from Barron's over the weekend.

Despite the recent pitfalls at Deckers -- shares falling 50 percent over the last several months, for example -- checks within the industry, as well as with analysts and customers, suggest there is more upside ahead for the UGG-brand shoe maker. Key factors include lower sheepskin prices, as well as expanding retail market presence and new international locations.

Over the last five years, top-line CAGR has been 35 percent with EPS jumping 44 percent per year over the same period. However, in 2012, a 40 percent surge in sheepskin prices, early warm weather, and European crisis have hit shares. The shift caused Deckers to lower is outlook the past two quarters. Revenue is now expected to rise just 13 percent in 2012 with EPS dipping 11 percent to $4.56 per share.

Deckers is still debt free and has about $6 per share ($229 million) in cash. To respond to recent price dips, management bought $20 million worth of stock in the first quarter and authorized an additional $80 million for the next several quarters. The move should bode well with sheepskin prices dropping 35 percent over the last few months.

In addition, CEO Angel Martinez said the push for its UGGs men's line is going well. The company is looking to keep its Teva sandal segment up-to-date with the addition of sneakers and cross-training footwear. There's also the addition of Sanuk surfwear, which Deckers acquired in 2011 for about $120 million. Sanuk is expected to add $90 million to Deckers' top-line numbers, though the company expects that number to grow to $200 million by 2015.

Competitors include Wolverine World Wide (NYSE: WWW), Crocs (Nasdaq: CROX), and Columbia Sportswear (Nasdaq: COLM). Of the three, Deckers has shown strong EPS growth and provides a return on equity of 25.0 percent. It's forward P/E of 11.6 times also puts it below Wolverine and Columbia (though Crocs has a slightly lower multiple at 10.9 times). Should Deckers be able to get up to a 15 multiple, the EPS outlook for $4.53 in 2012 would put Deckers at $68. Should Deckers meet the $5.47 expected in 2013, that means the stock could get all the way up to $80.

Shares are indicated about 1.9 percent better ahead of the bell Monday.

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