If The Shoe Fits: Analyst Upgrades Steve Madden

Many investors with exposure to apparel, shoewear, and fashion stocks have reason to be concerned moving forward, but at least one analyst is confident in recommending owning Steven Madden, Ltd. SHOO.

The Analyst

Buckingham Research Group's Scott Krasik upgraded Steve Madden's stock from Neutral to Buy with a price target boosted from $39 to $48.

The Thesis

Krasik hosted Steven Madden CEO Ed Rosenfeld for an investor meeting and came away confident in the near and longer-term prospects. The analyst cited four reasons to upgrade the stock, including:

• Confidence in the company's ability to achieve its fourth quarter guidance due to an acceleration in boot sales throughout November;
• Expectations for at the very least guiding fiscal 2018 sales at a mid-single digit rate;
• Incremental earnings upside should tax reform be passed given the company's high tax rate and notable overseas cash, which can support a special dividend and/or incremental stock buyback; and
• Incremental upside potential from acquisitions next year.

"Under this backdrop, we think SHOO can see multiple expansion even though near-term EPS estimates are unlikely to materially beat consensus," Krasik said in a note. "At current levels, we believe the risk/reward is favorable."

Price Action

A $48 price target is based on a 20 times multiple on the analyst's fiscal 2018 EPS, which is a 2.5 turn premium to the stock's five-year average and peer group. This would be warranted given the company's status as being a best in class non-athletic footwear company.

Shares of Steve Madden gained more than 7 percent Wednesday and hit a new 52-week high of $44.20.

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