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Skechers has upside potential that Wall Street could be missing, Cowen said. Analyst John Kernan upgraded the stock to outperform from market perform. He also raised the price target to $65 from $48. The new target implies upside of 39.4%. Kernan said Skechers remains the second most-liked casual sneaker brand in the U.S. with about 19% preference share, behind leader Nike at around 25%. He said web traffic grew 38% year over year. “Skechers’ value proposition continues to resonate based on our checks and is gaining preference in our survey for casual/lifestyle footwear from Nike and Adidas ,” he said in a note to clients Monday. “We view Consensus sales and EPS estimates as too conservative with working capital drags ending in 2022 supporting an inflection in Free Cash Flow.” He said analysts may be underestimating earnings for the footwear company. Specifically, he’s expecting 12% sales growth in 2023, above the Wall Street consensus of 9%. Kernan noted the Street may not have fully accounting for potential tailwinds coming from a supply chain recovery. Still, he said domestic wholesale will decelerate in 2023 to a 6% increase from a 26% jump a year prior. But he said direct-to-consumer estimates should be too conservative. Meanwhile, Kernan said inventory dollars should slow in the fourth quarter and normalize in 2023, which would reduce pressure on working capital. He also said Skechers has a path to $500 million free cash flow by 2025 and a $1.5 billion stock repurchase through 2025, all while keep net cash near its historical level. Taken together, he said sales momentum and margin recovery will drive per-share earnings growth of 40% or more in 2023 and 20% or more in 2024. He also noted the global diversification of the business, while noting positives in international markets such as optionality in China and continued share gains in Europe. The stock gained 1.9% in premarket trading and is up 11.1% this year. It outperformed the broader market in 2022, shedding 3.3%. — CNBC’s Michael Bloom contributed to this report.
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