On Wednesday, Guggenheim initiated coverage on Crocs , Inc. (NASDAQ:CROX) with a positive outlook, assigning a Buy rating and setting a price target of $182.00. The firm highlighted the durable nature of the Crocs brand and its significant global brand awareness, which exceeds 90%. The analyst pointed out that Crocs has secured its position in the approximately $160 billion casual footwear market.
The current stock price of Crocs, trading at 9.8 times the firm's fiscal year 2025 earnings per share estimate, is seen as reflecting an excessive level of market skepticism. Guggenheim has set forth earnings per share (EPS) estimates for fiscal years 2024 and 2025 at $12.90 and $14.00, respectively. They project revenues for 2024 at $4.12 billion, emphasizing Crocs' leading profitability with gross margins above 58% and operating margins over 25%.
Guggenheim also noted Crocs’ free cash flow yield of around 9%, which equates to approximately $750 million for the current year, suggesting that this aspect is undervalued by investors. According to the firm, Crocs' valuation is compelling, especially given its position in the lowest quintile of Guggenheim's Total Footwear and Apparel (TFA) coverage universe and the broader footwear industry. The company's debt leverage ratio, which falls within the target range of 1-1.5 times, supports the belief that strong free cash flow can be returned to shareholders through buybacks, potentially increasing earnings per share by an estimated $3.
The coverage suggests that Crocs has multiple growth opportunities in line with trends in casualization, comfort, functionality, and personalization within the footwear industry. The firm also sees significant international growth potential for Crocs, especially given its strong position in South Korea and the fact that only 4% of its revenues come from China.
In the face of macroeconomic uncertainties and a volatile consumer spending environment in North America, the leadership of CEO Andrew Rees is seen as capable of achieving the company's financial targets.
In other recent news, Crocs, Inc. has achieved a historic second quarter with revenues exceeding $1.1 billion, the highest in the company's history. The company's adjusted earnings per share (EPS) rose by 12% to $4.01, marking a record free cash flow. Analysts at Piper Sandler and BofA Securities have maintained positive ratings on Crocs, citing strong performance and attractive valuation.
Meanwhile, Williams Capital upgraded Crocs stock from Hold to Buy, following the announcement that actress Sidney Sweeney has become the new face of HEYDUDE, a Crocs brand. Despite a revenue decrease for the HEYDUDE brand, Crocs brand revenues grew by 11%.
InvestingPro Insights
Recent data from InvestingPro reinforces Guggenheim's positive outlook on Crocs, Inc. (NASDAQ:CROX). The company's P/E ratio of 10.12 and adjusted P/E ratio of 9.59 for the last twelve months as of Q2 2024 align with Guggenheim's observation of the stock trading at 9.8 times fiscal year 2025 earnings estimates, indicating a potentially undervalued position.
InvestingPro Tips highlight that Crocs is "trading at a low P/E ratio relative to near-term earnings growth," which supports Guggenheim's view of the stock's compelling valuation. Additionally, the tip noting "high return over the last year" corroborates with the firm's positive outlook on the company's performance.
The revenue growth of 4.35% over the last twelve months and the strong gross profit margin of 57.11% align with Guggenheim's projections of robust profitability. Moreover, the operating income margin of 26.36% supports the firm's statement about Crocs' leading profitability with margins over 25%.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Crocs, providing a deeper understanding of the company's financial health and market position.
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