SUPERNEWS

Equities

BoA: Buy Crocs Before Earnings, Targets $150, 21.4% Rise

Bank of America backs Crocs with a buy rating, eyeing a 21.4% stock increase and strong international growth ahead of earnings.

By Bill Bullington

ᐧ

5/2, 08:53 EDT
Bank of America Corporation
Crocs, Inc.
Skechers U.S.A., Inc.
article-main-img

Key Takeaway

  • Bank of America endorses Crocs with a buy rating and a $150 target, foreseeing a 21.4% stock increase.
  • Crocs' international sales, especially in Asia, expected to drive significant growth; HeyDude's turnaround seen as potential boost.
  • Positive signals from peers like Skechers and Steve Madden bolster confidence in Crocs' upcoming earnings performance.

Strong Momentum for Crocs

Bank of America has highlighted Crocs as a compelling investment opportunity ahead of its earnings report next week. Analyst Christopher Nardone has reaffirmed a buy rating and a $150 price target on the stock, indicating a potential 21.4% increase from Thursday's closing price. Crocs, once celebrated as a "Covid winner," has seen its stock rise over 32% year-to-date. The company is expected to report its earnings on Tuesday before the market opens. Nardone's optimism is based on the belief that Crocs can achieve the upper end of its sales and EPS guidance, potentially even surpassing these figures due to the brand's ongoing momentum.

International Growth and Brand Value

Crocs' international business, which represents 40% of its total sales, is anticipated to be a significant growth driver in both the quarter and the full year. Nardone forecasts an 8% growth in total Crocs sales for the first quarter and a 6% increase for the full year. International sales are expected to rise by 11% this year, a figure Nardone considers conservative given the segment's performance over the last two years. The growth is particularly strong in Asia, with China and India being notable markets. The value proposition of Crocs, especially in a "price-sensitive consumer environment," alongside the potential in international markets, are seen as key competitive advantages.

HeyDude's Turnaround Potential

The casual footwear brand HeyDude, acquired by Crocs, has faced investor concerns after underperforming in the last two quarters of the previous year. However, Nardone sees potential for a turnaround with the recent appointment of Terence Reilly as the brand's president. Reilly's previous experience with Crocs and as the former president of drinkware brand Stanley is expected to benefit HeyDude in the medium term. In the near term, the market's focus will likely be on improvements in direct-to-consumer (DTC) sales and margins for HeyDude. Nardone warns that a cut to guidance could disappoint and impact credibility, despite HeyDude only representing 18% of the combined brand EBIT.

Positive Industry Signals

Recent positive wholesale results from peer footwear companies Skechers and Steve Madden are seen as encouraging signs for Crocs' upcoming earnings. These results may indicate a favorable environment for Crocs, further supporting the optimism surrounding the company's performance.

Street Views

  • Christopher Nardone, Bank of America (Bullish on Crocs):

    "We think the upper end of sales/EPS guidance is achievable, with potential for a beat driven by momentum in the Crocs business... We think the value proposition of both brands (particularly Crocs) and international white space will remain key competitive advantages in a softer U.S. consumer backdrop." "Nearer term, we think the market will be most focused on signs of improvement in both DTC and margins."