Last week's biggest gainer on the New York Stock Exchange was Skechers (SKX -0.81%), soaring 36.9% after posting better-than-expected financial results. At least three analysts followed Skechers' encouraging third-quarter results with bullish actions, and the stock went on to hit its highest level in nearly two years.
Skechers came through with a blowout report. Net sales rose just above 16% for the second quarter in a row, above the 11% to 14% it was looking for back in July. Earnings soared 42%, breaking a streak of five consecutive quarters of declining profitability. Skechers benefited from a much lower effective tax rate, but bottom-line growth would've still been positive without that welcome profit-padding tailwind.
It's a good fit
The third quarter has been a historically rough time to be a Skechers investor. The stock tumbled 17% the day after the company posted financial results for last year's third quarter, and it fell 32% the day after the numbers came out for the same period in 2015. There were single-digit percentage slides in 2014 and 2013. You have to go back five years to find the last time the market responded favorably to a Skechers third quarter, and that's a big deal, because it's the footwear giant's biggest quarter of the year.
Analysts ate up the strong report. Sam Poser at Susquehanna boosted his price target from $34 to $38, encouraged by the company's healthy domestic business and its continuing international growth. He sees earnings continuing to bounce back through 2018, given Skechers' slowing investment outlays.
Christopher Svezia at Wedbush upgraded the stock from "neutral" to "outperform." He was encouraged by the company's strong gross margin and international growth, as well as the gradual improvement at Skechers' domestic wholesale business, which had been negative until the second quarter of this year. He raised his price target from $25 to $35 on Friday morning, but with the stock closing near $34 by the end of the day, he may have to rethink either his price target or his stock rating.
We also had Omar Saad at Evercore ISI initiate a 6% position in the firm's Model Portfolio. He thinks Skechers has succeeded in creating a platform that's able to design, source, and distribute a wide range of sneakers at compelling price points.
Skechers now moves into the seasonally sleep fourth quarter, but its guidance suggests another period of net sales growth in the teens and triple-digit percentage growth in earnings. Footwear is competitive, and Skechers will continue to be a volatile investment. However, the turnaround is real, with the stock at its highest level since the eve of its devastating third-quarter report of 2015. Wall Street's buying the comeback.