Deckers Outdoor Corp (DECK): Janus Capital Gets a New Pair of Shoes

Nike made plans earlier this year to divest its Cole Haan and Umbro businesses, and expects to see 2013 growth driven by North America, but longer-term growth driven from emerging markets. Weak consumer spending in Europe and a slowing Chinese economy have driven the stock down 7.5% over the past six months. Billionaire investor and founder of Renaissance Technologies – Jim Simons – is one of the top fund managers in Nike (see Jim Simons’ top picks).

Wolverine, much like the other shoemakers, has seen interim weakness and recently guided down its 4Q earnings. This move has pressured the stock down 5% since mid-September. Wolverine recently partnered with Golden Gate Capital and Blum Capital to acquire Collective Brands for $21.75. The contribution from the Collective brands is expected to dilute earnings by about 5 cents over the next calendar year.

Deckers has a lot riding on this winter season; its UGG brand is well positioned in the U.S, and its product diversification will help boost international sales, which include closed-toe shoes (Teva), and action sports wear, via its recent acquisition of Sanuk. From a valuation standpoint, Crocs and Deckers are by far the cheapest of the stocks we’ve discussed, as both trade at 9-10 times trailing earnings. This is far above the likes of Steve Madden (17x), Wolverine (19x) and Nike (22x). We believe that Deckers has better growth prospects than Crocs, based on the investment thesis that the latter’s business model is more dependable on fashion fads. Deckers, meanwhile, has greater diversity in its product portfolio.