Argus Research has issued a BUY recommendation for Skechers USA Incorporated (SKX), citing undervaluation, solid revenue growth, and strong operational performance as primary drivers for its optimistic outlook. With robust performance in its wholesale and direct-to-consumer segments, Skechers has posted better-than-expected earnings and revenue, showcasing resilience and strategic growth. As part of its expanded guidance, Argus sets a target price of $80 for SKX, expecting the stock to benefit from Skechers’ expansion into emerging markets and potential share buybacks. Investors, however, should exercise due diligence before making investment decisions.

Positive Earnings Momentum and Revenue Growth

Outperformance in Recent Earnings: Skechers reported an impressive 3Q24 earnings per share (EPS) of $1.26, surpassing consensus estimates and significantly improving from $0.93 a year prior. This marked a strong third-quarter performance, driven largely by its wholesale segment, which saw a 20.6% increase in revenue.

Revenue Growth and Segment Success: Total revenue climbed by 15.9% to $2.35 billion, setting a quarterly record. Skechers' direct-to-consumer sales increased by 9.6%, reflecting the strength of its retail and e-commerce channels. Management's guidance for 4Q24 projects revenue between $2.165 and $2.215 billion and EPS in the range of $0.70–$0.75.

Valuation and Target Price Analysis

Undervaluation Highlights Buying Opportunity: Argus identifies Skechers as undervalued, trading at 13.0 times the revised 2025 EPS estimate—notably below the company's five-year average P/E of 17. This lower valuation underscores an attractive buying opportunity, with Skechers positioned to leverage its brand strength and expansion efforts. Argus’s target price of $80 implies a potential return of nearly 20% from current levels.

Operational Strength and Strategic Growth Initiatives

Expanded International Presence: Skechers continues to benefit from its international strategy, particularly in emerging markets like China and India. By expanding through new store openings and international agreements, Skechers is well-positioned to capture a larger share of the global athletic footwear market.

Consumer Demand and Direct-to-Consumer Success: Increased wages and robust consumer spending have bolstered demand in Skechers' direct-to-consumer channel, enhancing its retail footprint and digital engagement. This strategic focus is expected to support sustained growth in consumer sales.

Investment Risks and Considerations

Execution and Market Risks: Skechers faces potential risks from economic conditions, evolving consumer trends, and high competition within the footwear industry. Additionally, inventory management presents execution risks, as any significant misalignment could impact margins and sales.

Legal and Concentration Risks: Skechers is involved in an ongoing legal dispute with Nike, which alleges patent infringement related to two Nike designs. Moreover, Skechers’ reliance on a few large customers (15-18% of sales) also exposes it to concentration risk, as changes in demand from these customers could affect revenue.

Financial Position and Forward Guidance

Solid Financial Health and Shareholder Value: Skechers maintains a strong financial position with $1.35 billion in cash and manageable debt levels, ensuring flexibility for future investments and share buybacks. The company's financial strength rating remains "Medium-High," positioning it well to capitalize on growth opportunities.

Raised EPS Estimates: Argus has updated its 2024 and 2025 EPS estimates to $4.25 and $5.02, respectively, reflecting Skechers’ favorable revenue growth trajectory and profitability improvements.

Growth Potential and Long-Term Strategy

Innovation and Product Development: Argus expects Skechers to continue its growth by developing innovative products, expanding its distribution network, and reinforcing its market presence through strategic brand investments.

Disclaimer: Investors should conduct their own due diligence before making investment decisions. Market conditions and company performance may vary, impacting the stock’s outlook and return potential.