MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
Roth Capital Partners initiated coverage of Quiksilver today with a “buy” rating and a $5 price target for Quiksilver’s stock. This morning, Quiksilver stock is trading at $3.12.
Here’s a summary of what analyst David Griffith had to say:
“Our favorable outlook is based on the following:
Strong Lifestyle Brands. Quiksilver Inc. has a portfolio of well-established global brands, led by the Quiksilver, Roxy and DC labels, each in excess of $475 million of sales volume.
Additionally, ZQK markets skate and surf lifestyle products under the Hawk, Lib Tech and Gnu brands.
Global Distribution. In 2010, 65% of ZQK’s revenues were generated outside of the U.S., with particular strength in the European market. About 40% of the company’s revenues were from Europe, while 14% came from Asia/Pacific. Quiksilver Inc. products are distributed in over 90 countries via a combination of wholesale, licensed, and company-operated stores.
Strengthened Balance Sheet. Subsequent to the ill-fated Rossignol acquisition and divestiture, the company’s balance sheet was heavily leveraged, with a net debt to capitalization of 70% as of January 2009. Through improved operating performance and an infusion of equity capital from Rhône, ZQK’s net debt to cap stands at 48% as of the most recent quarter, and the company has generated at least $200 million in operating cash flow in each of the last two years.
Attractive Valuation. We believe ZQK is well-positioned as a global multi- channel lifestyle brand and that the shares are overly discounted relative to its peer group given fallout from the Rossignol transactions and the resulting balance sheet leverage.
Over the next 12 months, we believe ZQK shares can trade at our price target of $5, based on an EV/EBITDA multiple of ~7x our fiscal 2012 EBITDA estimate of $226 million. As such, we are initiating research coverage of ZQK with a Buy rating.
Risks to Our Price Target Include:
· Ongoing weakness in consumer spending due to a difficult job environment and global macroeconomic headwinds.
· A competitive environment in which strong product development, innovation and strong marketing are critical to the long-term success of lifestyle brands.
· The need to generate strong cash flows and service the company’s long- term debt.”