Deckers Crushes Dismal Expectations

Jul.27.12 | About: Deckers Outdoor (DECK)

One of the best feelings of investing is being proved right by call on a company that has substantial negative sentiment (We all have enough experiences with investing disappointments). This happened for me after the bell Thursday when Deckers (DECK) reported earnings that easily beat dismal expectations. The stock should have a big pop tomorrow. Although I was a bit early on my June call on the stock, but even after tomorrow's early rise the stock has substantial value.

Key highlights from earnings report:

  • Company reported a loss for the quarter of 53 cents, 7 cents better than the 60 cent loss than analysts expected.
  • More importantly revenues came in at $174.4mm, above consensus estimates of $166.8mm.
  • Online sales rose more than 40%.
  • The company gave implied guidance for FY2012 of $4.56 to $4.61, higher than the current consensus of $4.45.
  • For the fourth quarter, the company expects earnings per share to rise 22 percent and revenue to rise 19 percent over year-ago levels.
  • Deckers also announced a $200 million stock repurchase program.

"Deckers Outdoor Corporation engages in the design, manufacture, and marketing of footwear and accessories for outdoor activities and casual lifestyle use for men, women, and children." (Business description from Yahoo Finance).

Four reasons Deckers is still undervalued:

  1. Insiders continue to buy the stock with a director adding 10,000 shares earlier this month.
  2. The company is selling for around 8 times forward earnings, cheap consider the company is still growing revenues in the double digits.
  3. The company's valuation is even cheaper when you consider Decker's has almost $6 a share in net cash on its balance sheet.
  4. Even after the pop tomorrow in early trading, the company will still be significantly below analysts' price targets. The mean price target for the twelve analysts that cover the stock is north of $66.

Disclosure: I am long DECK.