Why Did Skechers USA Stock Get An Upgrade?

Skechers USA Inc.’s SKX upbeat first-quarter results and fiscal 2021 guidance provide a “clearer EBIT & EPS trajectory for the business,” and the company seems poised to generate EBIT margins and earnings growth of at least low double digits, according to Morgan Stanley.

The Skechers USA Analyst: Kimberly Greenberger upgraded the rating for Skechers USA from Equal-Weight to Overweight, while raising the price target from $44 to $56.

The Skechers USA Thesis: The company executed on various fronts in the first quarter, including “improved EBIT flow-through, P&L visibility, & a more balanced mgmt. compensation structure,” Greenberger said in the upgrade note.

Skechers USA provided full-year guidance for the first time in its history, which allows investors to “more explicitly model potential SG&A outcomes, and thus quells the primary culprit behind historical EBIT and earnings volatility,” she noted. The analyst believes there is an upside to management’s projections.

Greenberger wrote that Skechers USA introduced changes to tie executive compensation with earnings and total shareholder return regarding the management compensation.

“While we acknowledge the EPS growth targets are fairly low, we applaud SKX for taking the necessary steps to align management compensation with investors’ focus on operating income and EPS growth,” she added.

SKX Price Action: Shares of Skechers USA had jumped 15.82% to $51.62 at the time of publication Friday afternoon.

(Photo: Skechers)