BofA analyst Christopher Nardone upgraded the shares of Skechers USA Inc (NYSE:SKX) from Neutral to Buy and raised the price target from $71 to $87.

The analyst said the upgrade is on the basis that the wholesale environment is improving, broader footwear trends remain solid, and implied 2H sales guidance could prove conservative.

According to the analyst, SKX offers compelling value at 14.6x F25E P/E given the expectation for a 11% 3 year sales growth CAGR.

Also, the analyst raised 2Q24/F24 EPS estimates by 8%/2% to $1.00/$4.15 to reflect stronger revenues.

The management's confidence in the trajectory of the U.S. wholesale business has improved relative to earlier this year and the brand is gaining traction with newer, higher priced innovation, noted the analyst.

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The analyst is confident of significant international opportunities across China, SE Asia, Latin America, and Eastern Europe.

The biggest near term operational risk is volatility around supply chain and freight rates, which will be manageable if SKX delivers outsized growth, said the analyst.

The first-quarter results in April have given positive data points from footwear brands Crocs Inc (NASDAQ:CROX), Birkenstock Holding PLC (NYSE:BIRK), Deckers Outdoor Corp (NYSE:DECK) and On Holdings AG (NYSE:ONON) and most retailers, thereby boosting confidence that momentum in the category will continue, asserted the analyst.

The analyst notes SKX's current valuation at 15x P/E is a compelling entry point given the increased confidence on the sustainability of double digit sales trends.

Price Action: SKX shares are trading higher by 2.24% at $72.71 at the last check Friday.

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