BofA Reiterates Buy on Crocs, Sees Stock as Undervalued Amid Strong Execution

BofA Securities analysts reiterated a Buy rating and set a $179 price target on Crocs (NASDAQ:CROX), citing the stock's attractive valuation and potential for multiple expansion. The analysts highlighted that Crocs is trading at a relatively low 9x P/E ratio and believe continued strong execution by the company could drive an improved valuation.

A key debate around Crocs concerns whether the brand’s core North American business is slowing. Last quarter, management expressed caution regarding the U.S. consumer and projected flat sales for the region in the second half of 2024, compared to 5.5% growth in the first half. Concerns also arose that the shift of Crocs’ business with Amazon from wholesale to direct-to-consumer (DTC) may be masking potential underlying weakness.

The analysts estimate that the Amazon shift will contribute approximately 150 basis points to Crocs’ total sales growth this year. For North America, they forecast 1% growth in the second half and note that meeting guidance would ease concerns about the brand's strength, particularly if fourth-quarter growth remains positive.

The analysts also discussed Crocs' Heydude (HD) segment, which is expected to see a significant sales improvement in Q4, driven by factors such as new retail stores, international distributor sales, and lapping a timing shift in product shipments from last year. The analysts anticipate that Heydude will meet the lower end of its sales guidance for the year and emphasize that any signs of sequential improvement will likely be well-received by the market, given the brand’s already strong margins despite weak first-half results.