Tuesday, FBR Capital Markets initiated coverage of Quiksilver Inc. (ZQK) stock with a Market Perform rating and a price target of $2.
Analyst Eric Tracy noted that with the drag of the Rossignol acquisition out of the equation, the company can refocus its efforts on its apparel business and potentially drive improved profitability as macro conditions stabilize. The obvious overhang to fundamentals and the shares remains the company's high debt load.
The analyst said that Quiksilver faces several top-line headwinds: Macro and product trends are currently off-cycle for action sports, and Quiksilver and Roxy are mature brands. If sales can turn positive, however, then cost structure improvements should allow for a more normalized margin structure over the long term, which would enable Quiksilver to chip away at its debt.
With limited visibility, the analyst remains on the sidelines for now; however, deep value investors with longer-term time horizons looking for a laggard in the space may view this story attractively.
Currently, ZQK is down $0.14 or 6.11% and trading at $2.15.
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