Skechers USA has favorable tailwinds, but valuation is fair

By Sam Boughedda 

Skechers USA (NYSE:) was started at Neutral with a $42 per share price target by Piper Sandler analysts on Thursday.

The analysts said in a research note that they believe SKX has favorable secular tailwinds of comfort and convenience and a significant margin expansion opportunity but that its valuation is fair given the uncertain consumer spending environment.

“SKX is the leader in casual footwear with name-recognizable technical innovation such as Arch Fit that can be utilized across styles and categories, which we believe is positioned well based on favorable trends we are seeing in the casual footwear space,” wrote the analysts.

They added that comfort is a growing category, and we see low-hanging fruit in terms of international expansion. As of Q3, Skechers had 4,458 company- and third-party-owned retail stores worldwide, with the international market its highest growth category and over half of its total business.

“Additionally, we expect margin expansion as we lap processing and logistics headwinds, elevated freight expenses, and as wholesale price increases begin to flow through, but topline trends could be lumpy in the near term due to exposure to a value consumer and exposure to the Chinese consumer,” the analysts continued. “We think SKX should also see some SG&A leverage with scale, but we note that operating margin expansion will hinge upon the ability to continue +HSD revenue growth.”