Hoka is one of the world's fastest-growing footwear brands, with fourth-quarter 2023 sales jumping 40% year-over-year, brokers at UBS said in a note as they maintained a ‘Buy’ rating on its owner, Deckers Outdoor Corp (NYSE:DECK).
What’s more, they raised their price target for Deckers to $610 from $560, saying the company’s strong outlook for sales and earnings justifies a 20 times price/earnings multiple.
“We believe Hoka's exceptional momentum with consumers continues and think this will lead to strong FY24 sales growth and stock-driving earnings beats,” the UBS analysts wrote in a note.
While the company delivered below-consensus earnings guidance for 2024 of $21.10 to $21.60 per share, below the sell-side consensus estimate of $21.77, the analysts said they believe the guidance is beatable.
“We note DECK beat the top-end of its initial FY22 and FY23 EPS guides by 11% and 6%, respectively,” they said.
“If DECK beats the top-end of its FY24 guide by 9% (the average of its beats in FY22 and FY23), then the company would earn $23.45. Our view is DECK's Hoka 20% FY24 sales growth guidance is very beatable given Hoka maintains exceptional global momentum with consumers.”
The analysts said they also see upside to Deckers’ gross margin guidance for FY24, pointing out that its EPS guidance assumes no share buybacks even though it has bought back over $650 million of stock during the last two years.
They also raised their sales forecasts for Deckers for the next few years due to an improved outlook for Hoka after its 4Q sales growth beat their forecast by roughly 500 basis points, increasing their conviction in the brand’s growth potential.
Deckers’ shares closed 3.4% higher at $465.18 on Friday.
Contact the author at stephen.gunnion@proactiveinvestors.com