Ugg Parent Company Decker Outdoors No Longer A Good Fit, Says Pivotal Research

Shares of Deckers Outdoor Corp DECK, the parent company behind multiple brands including UGG boots, have gained 70 percent over the past year — and now might be a good time for investors to move to the sidelines, according to Pivotal Research Group. 

The Analyst

Pivotal Research Group's Mitch Kummetz downgraded Deckers Outdoor rating from Buy to Hold with a price target lowered from $122 to $108.

The Thesis

A bullish stance on Deckers' stock consisted of a belief the company is well-positioned to take advantage of a favorable winter season and a favorable risk-to-reward profile, Kummetz said in the downgrade note. But these two catalysts have since played out, and the stock's gains now imply the risk-to-reward profile "no longer appears favorable," the analyst said. 

Deckers' outlook remains favorable, but a handful of factors yield an outlook that is "not as bullish" as before, Kummetz said:

• Checks at 60 independent footwear retailers in February found that 2018 boot prebooks aren't coming in as well as previously expected.
• Retailers continue to be "more cautious" after two warm winters in 2015-16 and 2016-17.
• Retailers are unlikely to overreact as positively as they would have in the past with future favorable weather trends.
• The company's fiscal third quarter will prove to be a tough compare, as it is lapping a 6.4-percent two-year stack.
• Stocks in general tend to lag after a strong winter, and Deckers' performance after a favorable winter "hasn't been great."

Price Action

Shares of Deckers Outdoor were down 7.36 percent at $90.32 Thursday afternoon. 

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