Deckers (DECK) Rallies on New Takeover Buzz

Shares of footwear maker Deckers (DECK: Charts, News) rallied over 5% yesterday on fresh takeover rumors, but the small recovery did little to satisfy the company's long-term investors, who have watched the stock lose 62% of its value over the past twelve months.

Financial website Bloomberg recently speculated that Deckers would be an attractive takeover target for private equity firms or publicly traded rivals, such as VF Corp. (VFC: Charts, News), the parent company of rival brands North Face and Timberland. VF Corp. notably outperformed Deckers over the past year, with shares rising 23.7% as Deckers plunged. Daily Chart
Alternative Investment Management & Research also noted that Deckers could be worth as much as $50 per share on a buyout offer, a 51% premium to its current price. Analysts believe that its low P/E multiple of 8.2 - the lowest since 2009 - could justify such a lofty valuation. Deckers is fundamentally the cheapest footwear and accessories maker with a market cap exceeding $1 billion. Deckers' revenue growth is expected to slow to 3.8% this year, a disappointing plunge from the 38% sales growth it posted in 2011, when the stock hit an all-time high of $117 per share. Wedbush analyst Corinna Freedman stated optimistically, "We feel like this is the bottom in the stock. We don't think that sentiment can get much worse." Despite weak sales growth ahead, Deckers still intends to open 30 new locations in fiscal 2013. Deckers blamed its rough year on warmer than expected weather year round, which adversely impacted sales of its UGG sheepskin boots. The rising cost of sheepskin also shrunk its margins as sales slowed. Raising prices in an attempt to recover its margins resulted in lower sales in the third quarter. UGG, which Deckers acquired in 1995, generated 87% of Deckers' $1.38 billion in revenue last year. Ugg boots, which originated in Australia and New Zealand, rose to prominence in the United States in 2001, and have since become a fashion staple of young women in North America. Analysts who think that a takeover is in the cards believe that the UGG brand is too valuable to pass up at a steep discount. Robert W. Baird & Co. analyst Mitch Kummetz noted, "The UGG brand is an attractive brand, and the company is undervalued relative to the strength of that brand." He added, "It could make sense for someone to come in and make an offer. I could see a strategic buyer being interested and I could see a financial buyer stepping up here as well." Deckers investors were also disappointed by the company's performance during Black Friday, the busiest shopping day of the year. Foot Locker (FL: Charts, News), Finish Line (FINL: Charts, News), Steven Madden (SHOO: Charts, News) and DSW Inc. (DSW: Charts, News) all posted strong sales on Black Friday, while Deckers' top-selling UGG boots posted lackluster results. Foot Locker and Finish Line were boosted by strong demand for athletic brands, such as this season's Jordan Retro IV from Nike (NKE: Charts, News). Meanwhile, Steve Madden claimed the highest sales in on-trend footwear, while DSW led in demand for boots and clearance items. DSW's strength in boots, driven by the approach of winter, has been recognized as a threat to Deckers' UGG sheepskin boots. Deckers does not offer athletic footwear to compete with Foot Locker or Finish Line. Shares of Deckers are now bouncing off its 52-week low of $28.53, but remain far below its high of $109.98. The stock trades with a 5-year PEG ratio of 1.3 and does not pay a quarterly dividend. Other News About DECK UGGs in Play With Deckers Seen Luring Buyers: Real M&A Buyers pile in, hoping for a hefty acquisition premium of the troubled footwear company. DECK)+Ramps+on+Takeover+Speculation/7901477.html" rel="nofollow" target="_blank">Deckers Outdoor Ramps on Takeover Speculation Could UGG lure buyers as Deckers' stock plunges? Other Stocks in the News Apple Inc. Off To Impressive Start In Holiday Sales: Barclays Apple rallies on strong Black Friday sales. Nokia Lumia Out Of Stock Due to High Sales Could this be the start of Nokia's turnaround? Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Nov 27, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...