Piper Sandler is selectively bullish in the apparel and footwear sector on the view that although the consumer spending environment has a high level of uncertainty, some standouts can be found.
Digging through the sector, the firm initiated coverage on Deckers Outdoor Corporation ( NYSE: DECK ) on Tuesday with an Overweight rating due to momentum at HOKA, solid free cash flow, near-term tailwinds for UGG, and capital return potential for shareholders.
Analyst Abbie Zvejnieks: "HOKA continues to gain share in the important specialty run channel, and we see an upside scenario for UGG performance this year led by Ultra Mini and Platform. We estimate HOKA can grow close to 40% y/y this FY, and we are modeling UGG growth ~200 bps ahead of the Street at 1.1% y/y."
Zvenjnieks highlighted that DECK has a solid +17.5% operating margin and noted share repurchases should drive significant value to shareholders. Valuation is called attractive at 17.5X the 2023 EPS estimate.
Piper Sandler assigned a price target of $440 to the stock.
Shares of DECK gained 2.67% in early trading on Tuesday to $371.44.
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Deckers Outdoor runs higher after Piper Sandler points to sales, margins outperformance