J.M. Dutton & Associates continues its quarterly coverage of Deckers Outdoor maintaining a Buy rating. The 8-page report by J.M. Dutton senior analyst Gerald LaKarnafeaux, CFA, is available at www.jmdutton.com as well as from Bloomberg, Zacks, First Call, Multex, and other leading financial portals.
We have raised our 12-month target for Deckers shares from $8.50 to $12. Our assumption is that the convertible preferred stock will be called, thus avoiding dilution of 1.514 million shares. EPS will be further enhanced by additional reductions in shares outstanding and/or the refinancing of the 16.75% subordinated notes.
The Company's operating results in the first and second quarters were well above expectations, due primarily to the sales performance of the Teva and Ugg brands and the absence of heavy Teva royalty payments. Its two leading brands have undergone an expansion of lines, styles, and models that provide growth opportunities in new product categories and in new geographical markets. With Teva's future clarified, the Company is in a position to establish high-margin license arrangements in non-shoe markets to capitalize on the well-known and highly regarded Teva brand name.
