Deckers Outdoor Upgraded to Buy at Jefferies on Oversold HOKA Concerns

Jefferies upgraded Deckers Outdoor (NYSE: DECK) to Buy from Hold on Monday, asserting that the market has excessively punished the stock for a slowdown in its HOKA brand's growth, a deceleration the firm believes is already priced in and showing early signs of reversing.

The Analyst's Thesis

In a note to clients, Jefferies analyst Blake Anderson argued that the stock's recent performance presents a favorable entry point for investors. The firm sees the company's medium-term guidance as "achievable and view upside opportunity over 12-plus months depending on success of HOKA product innovation, where early signs are encouraging."

Deckers' own forecast, issued during its fourth-quarter earnings call, projects high-single-digit revenue growth, stable operating margins in the low 20% range, and low-double-digit earnings-per-share (EPS) growth, supported by share buybacks.

Valuation and Financials

Jefferies' upgrade is underpinned by a valuation analysis. Anderson noted that Deckers' price-to-earnings (P/E) multiple has compressed from a high of 33 times to approximately 13 times. The firm believes this lower valuation already reflects an expected slowdown in EBIT growth to a high-single-digit rate, a significant shift from the roughly 20% compound annual growth rate seen over the last six years.

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The analyst also pointed to the company's strong balance sheet, with cash representing 13% of its market capitalization, as a factor providing downside support for the shares.

Brand-Specific Outlook

Jefferies attributed a significant portion of HOKA's recent slowdown to manageable issues, including "missteps of marketplace management and in our view lack of newness." The firm expressed optimism that these issues are being addressed, highlighting enhanced product segmentation and the recent Clifton Pro launch as a "significant milestone."

Furthermore, the note stated that the durability of the UGG brand is "underappreciated." Jefferies believes UGG's mid-single-digit growth outlook is well-supported by product diversity, innovation, and its dominant position as a category leader with no direct, pure-play competitor.