Deckers Outdoor (ticker: DECK) is down nearly 3% to around $64 so far Monday afternoon after Susquehanna Financial Group downgraded the stock to Negative from Neutral.
Analyst Sam Poser also lowered his price target to $55 from $57. He doesn’t think a turnaround is in the cards for the company, with or without the help of an activist.
Marcato Capital Management in September nominated 10 director candidates for Decker’s upcoming annual meeting on December 14. Marcato announced that it took a large stake in the beaten-down company in February. The firm thinks Deckers’ stock could more than double by 2020 if the maker of Uggs would accelerate its share buybacks and sell off ancillary assets. "Marcato’s plan to drive shareholder value at DECK is either overly optimistic or completely unrealistic," said Poser in a report published today. "We lean towards the latter." Poser explained:
We believe Marcato’s assumptions that UGG revenue will increase at a 2.6% CAGR from FY18 to FY21 in conjunction with 800 bps of EBIT margin expansion is unrealistic at best. The UGG brand is weaker today as compared to FY12, when DECK last posted EBIT of ~19%… Marcato’s plan to lever up DECK’s balance sheet, even just 1X EBITDA [earnings before interest, taxes, depreciation, and amortization] to repurchase stock, based on assumptions for a LSD revenue CAGR and 800 bps of EBIT margin expansion through FY21, is an unnecessary risk in our view. We believe that investors should be wary of the assumptions within Marcato’s plan, and, at the same time be wary of the ability of DECK’s current management to impact positive change.
Walk a mile in Marcato’s shoes ahead of the vote, but be prepared for a painful UGG turnaround.