By Paul R. La Monica

Shares of Deckers Outdoor, the worst performer in the S&P 500 this year through Tuesday, may be close to hitting bottom after a slide of more than 40%.

While investors are worried about how badly President Donald Trump's tariffs will hurt earnings, the stock's valuation compared with shares of other footwear companies, and slowing sales growth, analysts see reason for optimism. The valuation is lower now, the tariff picture is brighter, and hope for mergers in the shoe business is bubbling up. Deckers makes both Hoka running shoes and UGG boots.

"A pivotal...question is how much has underlying Hoka brand sales momentum slowed? We believe momentum is better than the market thinks," said UBS analyst Jay Sole in a report Wednesday.

He also boosted his earnings-per-share estimate for next fiscal year "to account for the change in U.S. tariff policy given our previous forecast." In other words, he believes earnings won't be hit as hard now that Trump has shown a willingness to negotiate trade deals.

Sole upgraded his price target on Deckers to $158 from $150 and maintained his Buy rating on the stock, implying a gain of 35% from Tuesday's closing price of $117.07. And that makes Sole one of the least optimistic analysts covering Deckers.

The consensus price target for the stock, according to FactSet, is $177 a share. Needham analyst Tom Nikic is the most bullish, with a target of $246 a share.

Deckers also no longer trades at an unreasonably high premium following the stock's slide. It is now valued at 20 times the earnings per share expected for the current fiscal year, below its five-year average of 25 times and at a discount to Nike and the S&P 500. In early January though, the stock was valued at a five-year high of more than 38 times earnings, a premium to Nike's 35 times.

Another potential catalyst? Sneaker maker Skechers announced plans to go private earlier this week. It is selling itself to 3G Capital for about $10 billion. Deckers shares trade at a small premium to Skechers, which is valued at 17 times earnings estimates.

Chris McMahon, president of Aquinas Wealth Advisors, told Barron's that he expects more small-cap and midsize companies to be taken over later this year, especially if the White House shifts its focus more toward deregulation and away from tariffs. "More M&A is going to happen," McMahon said. " Skechers is a great example."

There is no indication that Deckers is a takeover target. The company didn't immediately respond to a request for comment about whether it would consider a sale. It is also a larger company than Skechers, with a market value of about $18 billion.

But after a slow start to the year, merger activity is heating up, particularly for consumer-product companies. Pepsi is buying the prebiotic-soda maker Poppi while energy drink maker Celsius Holdings has scooped up rival Alana Nu.

Don't be surprised if more deals for brand-name consumer-product companies lift the valuations for discretionary stocks like Deckers.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 07, 2025 13:35 ET (17:35 GMT)

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