On Thursday, Piper Sandler showed confidence in On Holding AG (NYSE:ONON) by increasing its price target on the company's shares from $52.00 to $56.00, while retaining an Overweight rating. The firm highlighted the robust sales growth of On Holding AG, despite the current direct-to-consumer (DC) disruption.
The revised price target is based on the expectation of significant earnings power and an EBITDA goal that Piper Sandler anticipates the company will achieve by 2026.
On Holding AG, known for its performance running footwear and sportswear, has been part of a common pair trade strategy among investors, contrasting with Deckers Outdoor Corp . (NYSE:NYSE:DECK). According to Piper Sandler, there has been a 17% year-to-date increase in short interest in On Holding AG, while Deckers Outdoor Corp. has seen a 28% decrease in the same period.
The firm acknowledges that On Holding AG's stock valuation is not inexpensive, trading at 40 times price-to-earnings (P/E) and 30 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). However, they point out the difficulty in finding another company with a comparable sales growth of 29% on a constant currency basis, which is expected to translate into greater profit growth.
For Deckers Outdoor Corp., the analyst notes that overcoming a challenging comparison with last year's UGG sales is critical for this quarter. The consensus estimate of 3% UGG sales growth in the second fiscal quarter of 2025 appears to be on target, according to Piper Sandler. They also suggest that gross margins could offer a positive surprise, while noting that Deckers' stock performance has been subdued.
Piper Sandler's revised price target for On Holding AG reflects an earnings power of $1.80 per share, aligning with the firm's long-term EBITDA margin goal of over 18%, which is expected to be reached by 2026.
In other recent news, Deckers Outdoor reported a robust 22% increase in Q1 FY2025 revenues, reaching $825 million, primarily driven by a 30% surge in revenue from the HOKA brand and a 14% rise from the UGG brand. This has led to an upward revision of Deckers' annual profit forecast. The company has also undergone a 6-for-1 stock split, a move analysts from Williams Trading and TD Cowen have endorsed, adjusting their price targets to reflect the new valuation.
UBS has reiterated its Buy rating on Deckers, maintaining a price target of $225.00, citing the rapid growth of Hoka as a key contributor to Deckers' future sales and earnings performance. TD Cowen has also maintained its buy rating on Deckers' shares, with a steady price target of $176.00, underscoring the strong performance of HOKA.
BofA Securities maintained a neutral stance on Deckers' shares, keeping the price target at $170.00, highlighting a positive outlook on the growth potential for HOKA. They anticipate balanced growth between Deckers' direct-to-consumer channels and wholesale operations.
Investment firms Baird, Truist Securities, and TD Cowen have raised their price targets for Deckers, indicating a positive outlook. Finally, Deckers' new CEO, Stefano Caroti, is set to take over leadership as the company continues to experience significant growth and strategic changes.
InvestingPro Insights
To complement Piper Sandler's analysis of Deckers Outdoor Corp. (NYSE:DECK), InvestingPro data provides additional context for investors. As of the latest available data, DECK's market capitalization stands at $24.04 billion, with a P/E ratio of 29.98. This valuation is supported by strong financial performance, as evidenced by a revenue growth of 20.3% over the last twelve months and an impressive EBITDA growth of 47.89% during the same period.
InvestingPro Tips highlight that DECK is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.53, suggesting potential undervaluation despite the stock's recent performance. This aligns with Piper Sandler's observation of subdued stock performance for Deckers. Additionally, DECK has demonstrated a high return over the last year, with a one-year price total return of 86.17%, outperforming the broader market.
These insights complement the article's discussion on Deckers' performance and valuation. Investors seeking a more comprehensive analysis can access 12 additional InvestingPro Tips for DECK, providing a deeper understanding of the company's financial health and market position.
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