On Thursday, TD Cowen expressed increased confidence in shares of Skechers USA Inc . (NYSE: NYSE:SKX), adjusting the footwear company's price target to $88 from $76, while sustaining a Buy rating on the stock. The firm cited a solid beginning to the fourth quarter and optimism about the company's ability to meet future financial guidance as key factors in the decision.
This optimism appears well-founded, as InvestingPro data shows Skechers has achieved a 10.89% return in the past week and maintains a GREAT financial health score. According to InvestingPro's Fair Value model, the stock is currently trading near its fair value.
The analyst from TD Cowen highlighted that Skechers' robust start to the fourth quarter has bolstered confidence in the management's capability to set initial guidance for fiscal year 2025 that aligns with the expectations of both Wall Street and investors.
Despite potential risks from China, which accounts for 14% of fiscal year 2024 sales and operates under a joint venture structure, the analyst believes these challenges, including tariffs and supply chain concerns, are manageable. The company's strong financial position is evident in its current ratio of 1.96, indicating liquid assets well exceed short-term obligations.
Skechers' valuation is expected to improve alongside a rise in return on invested capital (ROIC). The company's consumer base is described as healthy and willing to invest in new innovations. Skechers is expanding its range of products that feature Slip-in technology, extending it to new lifestyle categories and technical athletic wear.
The Max Cushioning and Glide Step lines are noted as examples of franchises that have successfully integrated various innovative elements and are gaining traction in the market.
The company is anticipated to maintain a strong product pipeline heading into fiscal year 2025, with the majority of sales growth expected to be driven by volume. The analyst's estimates for fiscal year 2025 sales, along with management commentary, suggest high single-digit percentage volume growth for the next year. This outlook reflects a positive view of the company's growth trajectory and product strategy.
With a PEG ratio of 0.9 and revenue growth of 10.1% over the last twelve months, InvestingPro analysis reveals 8 additional key insights about Skechers' growth potential. Access the comprehensive Pro Research Report for deeper analysis of what drives Skechers' performance.
In other recent news, Skechers USA Inc. reported record sales of $2.35 billion in the third quarter of 2024, marking a 16% increase from the previous year. The company's earnings per diluted share also rose significantly by 35% to $1.26.
Notably, Skechers' growth was primarily driven by a 21% surge in wholesale operations and a 9.6% increase in Direct-to-Consumer sales. Despite regional challenges, particularly in China, Skechers saw substantial growth in international markets, which now account for 61% of total revenue.
The company's full-year 2024 sales are projected to fall between $8.925 billion and $8.975 billion, with earnings per diluted share expected to range from $4.20 to $4.25. Despite a 5.7% decline in sales in China due to macroeconomic challenges, Skechers ended the quarter with a strong liquidity position, with $1.6 billion in cash and $2.42 billion in total liquidity.
Williams Trading reaffirmed its Buy rating for Skechers, highlighting the strength of Skechers' new performance running shoes. However, Needham initiated coverage on Skechers with a Hold rating, citing near-term challenges such as a difficult market in China and moderating gross margins. In addition, the company is poised to expand its reach by entering the tennis market next year.
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