Buy Skechers Up to $30
Skechers (SKX) first quarter sales were about $5 million below our forecast, but its earnings per share were $0.12 ahead of our estimate and $0.10 above consensus expectations. The EPS upside was due to gross margins coming in higher than expected.
We remain bullish on the company's diverse portfolio of brands, international growth opportunities, and retail store expansion, all of which bode well for the company's long-term earnings growth. What's more, SKX shares are trading at 10.9x our 2008 EPS estimate and 9.3x our 2009 EPS estimate. We think this is an attractive valuation relative to our estimate of Skechers long-term earnings growth rate.
We reiterate our Buy rating, but we are increasing our target price from $26 to $30, which is about 14x our 2008 EPS estimate. SKX shares are trading at 10.9x our 2008 EPS estimate and 9.3x our 2009 EPS estimate. This is a discount to its peer group, the S&P 500, and our estimate of its long-term earnings growth rate. We think this is an attractive valuation, and we are bullish on SKX shares.
We Salute General Dynamics
General Dynamics (GD) continues to benefit from strong defense outlays. Revenue growth, margin expansion, an under-leveraged balance sheet, and cash generation are among the driving factors. The Marine segment got a boost from increased Navy spending on Virginia class submarines and Zumwalt class destroyers. Gulfstream witnessed sales grow by 17% during 2007.
Management also believes that there is ample near-term upside potential for the Combat Systems segment due to Abrams tank modernization and stryker production, and a boost in earnings at the IS&T segment despite a steady ramp-down of the Bowman program due to acquisitions & higher book-to-bill ratio. Accordingly, we maintain a BUY recommendation on GD with a six-month target price of $100.
Looking ahead, the company should benefit from an incremental Army program funding from the anticipated $80 billion supplemental. In our opinion, this supplemental and other spending by the U.S. Army is likely to continue for several years, although modest downside arises in a likely policy change related to the Iraq. Price appreciation to our near-term valuation target, coupled with a recently increased $0.35 per share quarterly dividend which appears very sustainable and secure represents annualized total return potential of 17.4%.
NovaMed Outlook Impresses
NovaMed, Inc. (NOVA) is an emerging healthcare services company engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals.
