NEW YORK (TheStreet) -- Skullcandy (SKUL) was rising 7.26% to $9.90 at 1:15 p.m. on Monday after D.A. Davidson upgraded the company, which makes headphones and other audio devices, to "neutral" from "underperform" and set a target price of $10.
The firm noted that the company's 2014 outlook suggests a quicker turnaround than previous estimates. Skullcandy reported 5% to 7% revenue growth, or approximately $39 million to $40 million, and GAAP earnings per share of 16 cents to 18 cents. The company issued full-year guidance of mid- to high-single digit revenue growth and GAAP EPS of 10 cents to 14 cents. Consensus estimates called for was looking for 4% revenue growth and EPS of 9 cents.
"The return to growth in 1Q guidance and full year profitability suggests our timeline for recovery was overly conservative," D.A. Davidson wrote in a research note. "With clean inventories, accelerating new product introductions, new distribution opportunities, and international growth potential, it is clear that the painful market reset experienced in 2013 has better positioned SKUL for 2014. The brand appears set to solidify its place as a top 4 brand alongside Beats, Bose and Sony. In our view, the long-term margin recovery potential on this revenue growth remains difficult to gauge."
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TheStreet Ratings team rates SKULLCANDY INC as a "sell" with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SKULLCANDY INC (SKUL) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Household Durables industry. The net income has significantly decreased by 68.9% when compared to the same quarter one year ago, falling from $11.46 million to $3.57 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Household Durables industry and the overall market, SKULLCANDY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $4.68 million or 81.13% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- SKULLCANDY INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SKULLCANDY INC swung to a loss, reporting -$0.10 versus $0.92 in the prior year. This year, the market expects an improvement in earnings ($0.10 versus -$0.10).
- The revenue fell significantly faster than the industry average of 28.8%. Since the same quarter one year prior, revenues fell by 28.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: SKUL Ratings Report