Crocs Appears Well Positioned, Stock Is Cheap - Baird

Mar.20.08 | About: Crocs, Inc. (CROX)

Baird is out positive on Crocs (NASDAQ:CROX) following meetings with management over the past couple of days. Firm notes CROX has spent a lot of time discussing its inventory and continues to do so. But short of reporting a sequential drop in inventory, which isn't likely until Q308, it doesn't seem like investors will be convinced that CROX doesn't have an inventory problem. One thing to note about its higher inventory level is that the company's fill rates have improved dramatically, and this has improved its customer satisfaction ratings as well.

According to the firm CROX acknowledges that the U.S. retail environment has gotten softer and this is adversely affecting its business, as it is many other companies. However, CROX still reports that its product is selling well, and that there is a broader assortment of its product at retail, with many of its newer styles getting good traction. Additionally, the company is optimistic about its back-half prospects, based largely on its fall prebook orders, namely on the strength of its Fuzz Collection.

International is a bigger part of the company's growth story than the U.S. CROX continues to see opportunity in Europe, Asia and developing markets such as China, Brazil and India. Additionally, the company's international accounts were underserved in FY07, as supply was concentrated on satisfying U.S. demand. For FY08, CROX is now in a better inventory position across the globe and more of its international accounts are being offered a broader assortment of product.

Baird's price target is $50, based on a high-teens multiple of one-year forward EPS estimate of $2.82. Maintains Outperform.

Notablecalls: Well, Baird's not the 1st one to defend the stock. As many of you (painfully) noticed, Piper Jaffray was positive on them already yesterday. The stock gapped higher but took a beating.

To my surprise, the stock is up considerably this AM, erasing almost all of yesterday's losses. The market surely works in mysterious ways.

It reminds me of Hansen (NASDAQ:HANS) some weeks ago when Longbow was out with a superbly positive call but got no reaction (actually, the stock took a beating). The next day Goldman Sachs came out with their positive call (highlighting same stuff as Longbow the day before) and the stock ripped.

I think we're going to get similar action in CROX as well today.

Note CROX is currently trading 5.1x Baird's FY2009 EPS estimates.