UBS analyst Jay Sole recently indicated that Deckers Outdoor (DECK.US) is “significantly undervalued,” with an expected price increase of about 53%. UBS reiterated a “Buy” rating on the stock, highlighting that the strong performance of Hoka and UGG brands over the next 12 months should lead investors to reevaluate the sales and earnings growth potential of Deckers Outdoor, which is expected to achieve a high single-digit to low double-digit compound annual growth rate (CAGR).

Deckers Outdoor owns well-known brands like HOKA ONE ONE and UGG, which have garnered attention due to HOKA's rapid growth in recent years. Data indicates that for the fiscal year 2025, UGG and HOKA account for 51% and 45% of total sales, respectively.

UBS believes the market has overly conservative expectations for Deckers Outdoor, particularly regarding its performance update for Q2 of fiscal 2026, predicting a sales increase of 11% for HOKA (approximately 200 basis points lower than market expectations), and describing sales growth as low double-digits for HOKA and low to mid-single digits for UGG. UBS pointed out that the prior higher growth projections for the brand were forecasts "excluding tariff impacts" rather than formal guidance.

Over the past four years, Deckers Outdoor's full-year EPS has typically exceeded its Q2 guidance median by about 17%. UBS argues that the company’s guidance for sales and gross margin in fiscal 2026 is “particularly easy to exceed,” noting that the gross margin for Q2 already exceeded the guidance by 220 basis points. UBS also emphasized the underlying assumptions for Q3 in the company’s guidance, such as an anticipated 300 basis point year-over-year decline in gross margin. Given the sales growth outlook in the single-digit percentage range, a 7% inventory increase for Q2, and the company's recent positive execution, UBS considers this expectation conservative.

Short-term projections show that Deckers Outdoor reported Q2 fiscal 2026 revenue growth of 9.1% year-over-year to $1.4931 billion, with an EPS of $1.82 (which is $0.21 above market expectations) and a gross margin of 56.2% (exceeding market expectations by approximately 200 basis points), and an operating margin of 22.8%. HOKA brand sales increased by 11.1% year-on-year, while UGG brand sales grew by 10.1%.

UBS noted that although their model does not assume aggressive buybacks, the company's buyback amount accelerated to $282 million for Q2 (up from $183 million in Q1, and an average of $124 million for the fiscal years 2024-2025); if this trend continues, it could create upward potential for EPS. UBS maintains its EPS forecast for Deckers Outdoor at $6.60 for fiscal 2026 (considering weather and macroeconomic impacts on UGG in early Q3), $7.85 for fiscal 2027, and $8.80 for fiscal 2028. The firm suggests that the industry environment remains constructive, with a projected 3%-4% CAGR for the footwear industry over the next five years, and approximately 8% growth for athletic footwear, benefiting HOKA and UGG brands due to ongoing athleisure trends.

For the medium-term growth drivers, UBS expects HOKA direct-to-consumer (DTC) sales to return to low double-digit growth by fiscal 2027, bolstered by expansions into training shoes, lifestyle, and apparel markets, as well as accelerated growth in international markets, particularly the Asia-Pacific region. As the proportion of high-margin DTC sales rises, enhanced economies of scale for HOKA, and operating expense leverage are anticipated, UBS forecasts that EBIT margins will approach 23% by fiscal 2030, though partially offset by tariff pressures.

A reverse discounted cash flow (DCF) model indicates that the market currently implies a mid-single-digit CAGR for EPS over the next five years, whereas UBS estimates it at around 9%, suggesting valuation upside potential, with the price-to-earnings (P/E) ratio potentially rising to align with peers at about 20 times. UBS highlights that metrics such as price-to-sales ratio, free cash flow yield, and DCF results support this valuation.

Various scenarios and target price benchmarks: Target price of $157—implying a five-year EPS CAGR of about 9%; HOKA U.S. direct and lifestyle business recovery; UGG growth rate at about 6%; gradual tariff decline; 2028 P/E at approximately 20 times. Optimistic scenario: Target price of $239—accelerated expansion of HOKA direct; UGG evolving into a year-round brand platform; 2030 EBIT margin about 25.5%; P/E at about 24 times. Pessimistic scenario: Target price of $48—weak consumer sentiment in the U.S.; slowing market share growth for HOKA; increased promotional activity; declining operating margins; P/E around 9 times.