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On Friday, Piper Sandler assumed coverage on Wolverine World Wide (NYSE:NYSE:WWW) stock, issuing an Overweight rating with a price target of $18.00.
The firm highlighted the company's strategic repositioning efforts, including the divestitures of Sperry in January 2024 and Keds in February 2023, changes to its business model, and an overhaul of its supply chain with the appointment of a new Chief Supply Officer in late 2023.
Despite current sales being down, Piper Sandler anticipates a cleaner financial model by 2025 as one-time items are expected to be largely absent from the base.
Wolverine World Wide's recent performance has surpassed expectations, with the company beating top-line consensus estimates by 4% and adjusted EBITDA/EPS by over 100% and 300% respectively, for the past three quarters.
This trend is seen as a potential driver for earnings upside and subsequent multiple expansion. The firm's $18 price target is based on a 10.5 times multiple of the projected 2025 earnings per share of $1.20.
The analyst underscored that Wolverine World Wide's sales are expected to stabilize as the impact from $130 million in discrete items from the first half of 2023 diminishes to an estimated $56 million in the second half of 2023.
Despite assortment shortages, particularly at Saucony, due to faster sell-through rates, the company is poised for a turnaround with medium single-digit sales growth, EBIT margin recapture, and free cash flow deployment towards debt repayment and share repurchases.
Looking ahead, Wolverine World Wide is positioned for a significant earnings per share growth of 20% into 2025 and beyond, which is currently undervalued at a 10-11 times price-to-earnings ratio. The firm also notes the improvement in free cash flow generation, with an ongoing free cash flow of $110-$130 million, representing 11-12% of the company's market capitalization, as an attractive aspect of the company's financial health.
In other recent news, Wolverine World Wide has demonstrated strong performance with its Q2 results surpassing expectations, prompting both Telsey Advisory Group and KeyBanc to reassess their targets for the company.
Wolverine's success in the second quarter was attributed to significant gross margin expansion, inventory and debt reduction, improved brand management, and effective demand creation initiatives. Telsey Advisory Group raised its price target to $15.00, maintaining a Market Perform rating, while KeyBanc upgraded the company's stock from Sector Weight to Overweight, setting a new target at $20.00.
Despite ongoing softness in Wolverine's two largest brands, Merrell and Saucony, the company has shown resilience. Merrell continues to gain market share, marking its third consecutive quarter of acceleration, while Saucony's e-commerce business witnessed a growth of over 20% in Q2. However, both brands have seen significant constant currency declines for the fourth consecutive quarter, indicating areas for improvement.
Wolverine World Wide's strategic transformation under new leadership and swift measures taken by management have laid the groundwork for a return to growth, expected to be evident in the fourth quarter. The company's upgraded fiscal year 2024 operating margin guidance, driven mostly by operating expense savings, is seen as a positive development. Despite the challenges, including anticipated revenue decline for fiscal year 2024 and supply chain disruptions, Wolverine remains committed to strengthening its balance sheet and improving inventory levels.
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