On Friday, BofA Securities made an optimistic move on Skechers USA (NYSE:SKX), upgrading the footwear company's stock from Neutral to Buy. Alongside the upgrade, the firm also increased the price target for Skechers shares to $87.00, a significant rise from the previous target of $71.00.
The decision to elevate the stock's status comes as the analyst observes an improving wholesale environment and robust broader footwear trends. Additionally, there is an expectation that the second half of the year's sales guidance might be on the conservative side. These factors contribute to the belief that Skechers presents a compelling value, especially with a price-to-earnings ratio of 14.6 times the forecasted 2025 earnings, considering the projected 11% compound annual growth rate in sales over the next three years.
In response to these positive market indicators, BofA Securities has adjusted its earnings per share estimates for Skechers. For the second quarter of 2024, the estimate has been increased by 8% to $1.00, and for the full year 2024, the estimate is up by 2% to $4.15. This revision reflects the anticipation of stronger revenues for the company.
The new price objective of $87.00 is based on an 18 times multiple of the forecasted 2025 earnings per share, which is an uptick from the previously used 17.5 times multiple of the 2024 earnings. This adjustment aligns with a reevaluation of peer multiples and advances the valuation year forward in the firm's analysis. Skechers' position in the market appears to be strengthening, as indicated by these recent strategic financial assessments.
In other recent news, Skechers has reported a record-breaking first quarter in 2024, with sales reaching $2.25 billion, a 12.5% increase from the previous year. The company's gross margin improved to 52.5%, while the operating margin reached 13.3%. In terms of expansion, Skechers has opened 52 new company-owned stores and 95 third-party stores in the first quarter. The company is aiming for $10 billion in sales by 2026 and plans to open between 155 to 170 new stores in 2024.
The full-year sales forecast for 2024 is set between $8.725 billion and $8.875 billion, with projected net earnings per share ranging from $3.95 to $4.10. Despite facing regulatory challenges in India, Skechers sees China as a long-term growth market and is optimistic about growth in the direct-to-consumer segment in Europe. These are recent developments that highlight the company's robust financial position and clear strategy for sustained growth and market expansion.
InvestingPro Insights
With BofA Securities' recent upgrade of Skechers USA, it's pertinent to look at the company through the lens of InvestingPro data and insights. Skechers is currently trading at a P/E ratio of 18.58, which, when paired with its PEG ratio of 0.41 for the last twelve months as of Q1 2024, suggests that the stock may be undervalued relative to its earnings growth. This aligns with the analyst's view of the stock as a compelling value.
InvestingPro Tips highlight that Skechers' liquid assets exceed its short-term obligations, and the company operates with a moderate level of debt, indicating a solid financial position. Moreover, the stock has been performing well, trading near its 52-week high and delivering a strong return over the last three months. Analysts also predict profitability for the company this year, which has been confirmed by its profitable performance over the last twelve months.
For those interested in deeper analysis, InvestingPro offers additional tips on Skechers, which can be found by visiting their dedicated page. Readers looking to leverage these insights for investment decisions can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With several more tips available, investors can gain a comprehensive understanding of Skechers' market position and future prospects.
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