On Tuesday, UBS has changed its stance on Buckle, Inc. (NYSE: NYSE:BKE), upgrading the stock from Sell to Neutral and increasing the price target significantly to $46.00 from the previous $31.00. The revision comes as the firm acknowledges a reduction in the long-term earnings risk for the retailer.
The upgrade is attributed to several key factors that indicate a more stable outlook for Buckle. Firstly, the company's comparable store sales in the third quarter showed a notable improvement, nearly reaching the previous year's levels, and have recently turned positive. This performance is expected to mitigate the impact of fixed cost deleverage and margin pressures that the company might otherwise face.
Additionally, Buckle has demonstrated a robust merchandise margin, which is anticipated to support long-term margin expansion. This is largely due to the growth of the company's private brands, which offer a significant margin premium.
The decision to upgrade also takes into account the stock's performance relative to the broader market. Buckle's shares have lagged behind the S&P 500 index year-to-date by approximately 3,100 basis points. UBS suggests that this underperformance has been factored into the revised rating.
The firm has also raised its earnings per share estimates for Buckle for fiscal years 2024 to 2026 by 4-6%. This adjustment, along with the application of a higher multiple, reflects the perceived lower risk to Buckle's long-term growth, justifying both the new price target and the upgraded rating.
InvestingPro Insights
The recent upgrade by UBS aligns with several positive indicators highlighted by InvestingPro data and tips for Buckle, Inc. (NYSE: BKE). The company's impressive gross profit margin of 58.98% in the last twelve months supports UBS's observation of robust merchandise margins. This is further reinforced by an InvestingPro Tip noting Buckle's "impressive gross profit margins."
Despite UBS mentioning Buckle's underperformance compared to the S&P 500 year-to-date, InvestingPro data shows a strong 1-year price total return of 49.49% and that the stock is trading near its 52-week high at 97.03%. This recent performance might indicate a positive shift in investor sentiment, aligning with UBS's upgraded outlook.
Additionally, Buckle's financial stability is evident from its dividend practices. An InvestingPro Tip highlights that the company "pays a significant dividend to shareholders" and has "maintained dividend payments for 22 consecutive years." The current dividend yield stands at an attractive 8.64%, which could be appealing to income-focused investors.
For readers interested in a more comprehensive analysis, InvestingPro offers 10 additional tips for Buckle, Inc., providing a deeper understanding of the company's financial health and market position.
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