US Softlines Retail "UBS HOLT: Assessing Value Creation Through a..."

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US Softlines Retail "UBS HOLT: Assessing Value Creation Through a..."

vely. Aditya Kulkarni

Associate Analyst

2. UAA, NKE and ROST show among the biggest negative differentials aditya.kulkarni@ubs.com

between HOLT LT CFROI forecast and market implied long-term levels. A +1-212-713 1098

negative delta between these returns indicates that the market's expectation for Serge Severenchuk

long-term CFROI is higher than what our HOLT model predicts in its base scenario. Associate Analyst

We think this signal is useful in screening for stocks with potential downside risk to serge.severenchuk@ubs.com

stock price should long-run profitability fall short of current market expectations. +1-212-713 4856

We highlight UAA, NKE and ROST as stocks with among the largest negative

differentials at -540 bps, -460 bps and -280 bps, respectively.

3. The HOLT analysis keeps us bullish on DECK: DECK is one of our top picks and

screens well in the HOLT analysis. The HOLT CFROI forecast for DECK is 21%,

which exceeds the market-implied CFROI of 12% by 910 basis points (Fig.101).

Plus, the HOLT model projects asset growth for DECK above what is implied by the

market (Fig.103). This matches our view. We see a very good opportunity to buy

shares in a growth company significantly undervalued by the market. We expect

DECK's EPS to positively surprise over the NTM due to its Hoka and UGG brands

growing revenue better than expected. We think this will remind the market DECK

is capable of growing sales and EPS at HSD%-LDD% CAGRs, sending DECK's

FY2E P/E to 17x from 14x currently (link).

UBS HOLT methodology:

HOLT is a framework for comparing and valuing companies, going beyond traditional

accounting information and emphasizing cash-generating ability and overall potential

for value creation.