NEW YORK (TheStreet) -- Skullcandy (SKUL) shares were upgraded to "neutral" from "underweight" by analysts at Piper Jaffray (PJC - Get Report) with a $7.50 price target.

Skullcandy shares are up 3.5% to $8.02 in early market trading on Wednesday.

The improved outlook follows the firm's confidence in headphone maker's new product line.

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"New products are selling well and the company is in a strong cash position. While we remain concerned about the longer term competitive dynamics in the industry, we think management has done an excellent job of cleaning up the distribution and improved focus across the organization," said analysts.

TheStreet Ratings team rates SKULLCANDY INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SKULLCANDY INC (SKUL) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Household Durables industry average. The net income increased by 50.9% when compared to the same quarter one year prior, rising from -$7.05 million to -$3.46 million.
  • SKUL's revenue growth trails the industry average of 17.3%. Since the same quarter one year prior, revenues slightly increased by 5.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SKULLCANDY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth 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 ($0.19 versus -$0.10).
  • Net operating cash flow has decreased to $9.59 million or 35.43% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 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.
  • You can view the full analysis from the report here: SKUL Ratings Report
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