UGG-Maker Deckers (DECK) Beats Q3 View, Cowen Sees a Path to a $500+ Stock

February 5, 2021 7:50 AM EST
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Price: $341.06 +0.45%

Rating Summary:
    22 Buy, 15 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 17 | Down: 13 | New: 41
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Deckers Brands (NYSE: DECK) reported Q3 earnings that topped the market analysts’ estimates. The company easily exceeded the estimated earnings per share (EPS) of $7.01 by reporting it earned $8.99 per share.

The maker of Ugg footwear saw its revenue soar to $1.08 billion for the quarter to end-December, compared to $938.74 million reported a year ago.

Shares of the company are trading about 1% higher in pre-open trading Friday.

"Our record third quarter performance was propelled by demand across the UGG brand's diversified product offering and the continued global expansion of the HOKA ONE ONE brand," said Dave Powers, President and Chief Executive Officer.

"The performance of our brands was primarily driven by our robust e-commerce engine and the resilience displayed by our teams to overcome significant operational and macro challenges related to the pandemic. With our strong portfolio of brands, stable operating model, and powerful balance sheet, Deckers is well positioned for continued success."

As expected, the market analysts were impressed with the latest results from DECK with Cowen’s John Kernan raising the price target to $365.00 per share from the old $330.00 on the Outperform-rated.

“We are raising our target to $365, which is 25x FY22E EPS - a multiple that could prove conservative given a multi-year inflection in UGG and HOKA's path to $1B in revenue. With $1.2B in cash on the balance sheet, DECK has multiple ways to create shareholder value through investments, share repo, M&A or dividend initiation. We are raising our FY22 EPS estimate to $14.34 vs. consensus of $13.20,” wrote Kernan in today’s note, before adding that if “the multiple on the stock can stay within 23x to 25x - we model a stock that can reach $500+.”

Similarly, Wells Fargo analyst Tom Nikic reiterated an “Overweight” rating on the DECK stock as momentum remains high and numbers keep moving up. He raised the PT to $360.00 per share (up from $284.00).

“No real holes to poke here, the DECK story remains one of the best in our space. Between the rapid expansion of the Hoka brand, strong brand heat at UGG, tight inventory levels (both internally and externally) and a rock-solid balance sheet, the sales and EPS growth potential for this company is extremely robust and compelling,” the analyst wrote in a note.

Nikic also adds that the company’s management tends to provide forward outlooks that are very cautious. Hence, he is confident that DECK will deliver another beat in three months’ time.

“DECK will be lapping the start of the pandemic (sales and EPS declined 5% and 33% respectively), while the 2 largest brands in the portfolio have significant brand momentum and low inventory levels in the marketplace (yielding a need for inventory restocking). Plus, Hoka becomes much bigger piece of the prior-year sales base in Q4 (27%) than Q3 (13%) - which means brand mix on sales growth is favorable. All in, we think Q4 could be a very strong sales and EPS quarter based on trends in the business,” Nikic concluded.



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