On Thursday, Evercore ISI initiated coverage on Skechers USA, Inc. (NYSE:SKX) with an Outperform rating and set a price target of $73.00. The firm highlighted Skechers' potential for steady revenue growth and margin improvement, citing several factors contributing to the company's positive outlook.
The analysis pointed to Skechers' broad product offerings and competitive pricing as key advantages in the current market, particularly as consumers look for more cost-effective options. The brand's growing appeal, supported by proprietary data, and its increasing traction with younger demographics were also noted as positive indicators for the company's future performance.
Evercore ISI projects that Skechers will achieve a compound annual growth rate (CAGR) of approximately 11% from 2023 to 2026 in top-line growth. This forecast is based on the expectation of a return to growth in the wholesale channel, which has been a significant drag on margins in 2023, and the easing of cost inflation pressures.
Additionally, the benefits from earlier investments made by Skechers and a slower pace of store openings are expected to contribute to long-term margin expansion. By around 2026, margins are anticipated to reach 12.6%, according to the firm's estimates.
The Outperform rating suggests that Evercore ISI believes Skechers' stock will perform better than the average return of the stocks the firm covers, indicating a positive outlook for the company's financial health and stock performance in the coming years.
InvestingPro Insights
In light of Evercore ISI's optimistic coverage initiation of Skechers USA, Inc. (NYSE:SKX), it's worth considering additional insights from InvestingPro. With a market capitalization of $9.18 billion and a price-to-earnings (P/E) ratio of 16.82, Skechers is trading at a valuation that appears favorable relative to its near-term earnings growth. This is supported by a PEG ratio of just 0.36 for the last twelve months as of Q4 2023, suggesting that the company's earnings growth could be undervalued relative to its share price.
Moreover, Skechers has demonstrated a solid financial foundation, with liquid assets surpassing short-term obligations, which aligns with Evercore ISI's positive outlook on the company's potential for steady revenue growth. The brand's revenue has grown by 7.47% over the last twelve months as of Q4 2023, with a gross profit margin of 51.9%, indicating a strong ability to convert sales into profits.
InvestingPro Tips further enrich this perspective, revealing that Skechers operates with a moderate level of debt and that analysts predict the company will be profitable this year, a continuation of its profitability over the last twelve months. Additionally, Skechers has provided a high return over the last decade, though it does not pay a dividend to shareholders. These factors may contribute to the appeal for investors seeking growth potential without the immediate income from dividends.
For readers interested in deeper analysis and additional insights, there are 7 more InvestingPro Tips available for Skechers, which can be found at https://www.investing.com/pro/SKX. To access these valuable tips and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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