Shares of Huntington Beach-based Quiksilver Inc. rose 6.5% Tuesday after an analyst upgraded the apparel maker saying it’s undervalued by the market.
Investors might be undervaluing the company because its 2005 acquisition of French ski maker Rossignol has had a “disappointing start,” said Morgan Stanley analyst Brian McGough, according to an Associated Press story.
“With all the talk about Rossignol, people forget that Quiksilver owns some of the most coveted assets in the surf/skate business,” McGough wrote in a research note.
The surfwear maker also owns the Quiksilver, Roxy and DC Shoes brands, which make up 73% of the company’s sales.
The company might be open to considering strategic options if earnings don’t improve, McGough speculated.
“To the extent the earnings rebound does not play out, we think that the potentnial for value-creating strategic actions is very likely,by either the existing management or a strategic/financial buyer,” he said.
McGough upgraded the stock to “overweight” from “equal-weight” and bumped up its price target to $17 from $13.50.
The shares closed at about $12 Tuesday with a market value of $1.5 billion.
Quiksilver bought Rossignol in 2005 and spent last year integrating the company. It’s been a rough process for Quiksilver, whose focus has been on turning around Rossignol’s slumping sales.
The company’s cut offices, workers and streamlined distributions at the ski maker. It recently warned about 2007 results.
Sales for the quarter through January were $552 million, up 2% from a year earlier. Net income was down 88% to $2 million. Quiksilver cited the winter sports slowdown as well as higher selling, general and administrative expenses for the drop.
