The 2023 analyst activity in Skechers USA (NYSE: SKX) is a little mixed but investors should be cheered. The single downgrade is to Equal Weight from Overweight with a price target that is in line with the Marketbeat.com consensus estimate and the remainder of the 5 (that Marketbeat.com tools have tracked) include 2 upgrades and 3 price target increases. These have both the sentiment and the average target firming. With earnings just around the corner, this could signal that the rally will continue. 

For now, the Marketbeat.com consensus rating is a Moderate Buy with sentiment firming. The latest upgrade comes from Cowen, whose analyst said “Skechers' value proposition continues to resonate based on our checks and is gaining preference in our survey for casual/lifestyle footwear from Nike (NYSE: NKE) and Addidas (FR: ADS),” in the note that came with the upgrade to Outperform. Their target is $65 compared to the $51.58 consensus target, and both imply an upside for the stock from the $49 level. 

Skechers Has An Easy Bar To Hurdle 

Skechers analysts have the bar for fiscal Q4 revenue set so low it’s almost impossible for the company to miss. The consensus expects a YOY increase but a sequential decline that is not in line with 2022 trends. The company may experience a pullback in revenue, but 600 basis points is a little much, given the strength shown in past results.

The real question is how the margins have been impacted and if the company can outperform on the bottom line. The big bottom line miss posted in the previous quarter has the consensus down to only $0.36 adjusted, which is down YOY and sequentially and in line with the company’s guidance. 

One area of concern is inventory. Inventory levels are rising across the retail universe, and Skechers is not immune. The difference is that Skechers inventory was up only 21% YOY in the last report compared to much higher numbers from its primary competitors like Nike.

Nike reported a sequential decline in inventory in its December 2022 release but up more than 40% YOY, leading to aggressive clearance actions. In this light, Skechers may not have had to use clearance actions to the same extent as Nike, so the margin may not contract as much as feared.

Skechers also has a significantly lower exposure to apparel, where many Nike inventory dollars are parked. Skechers is slated to report on February 2nd. 

The Institutions Slip Into A Pair Of Skechers

The institutional activity in Skechers is telling. The takeaway is that institutions are buying this stock and have increased their holdings by roughly $450 million over the last year, which is worth about 6% of today’s market. That activity has total ownership up to nearly 94% and is growing, which makes this a tightly held name and one that could pop, given an increase in volume. Assuming this trend continues, shares of the stock could easily continue moving higher. 

Turning to the chart, this stock appears to be reversible. The stock launched up from its bottom in late 2022 and has since broken above the 150-day moving average and several key resistance points to trade at a 1-year high.

This high may be broken after the next earnings report, but there is a risk the strength is already being priced into the market. If shares of SKX can not get above $50 the market may top out. Worse, if the market reverses course after the current candle, it will form a bearish signal.