YETI (YETI 17.92, +0.90, +5.29%), a maker and marketer of premium coolers and outdoor
products, has a very strong brand name among outdoor enthusiasts due to the
high quality of its products. However, that strong brand name did not translate
into immediate success for its IPO on October 25. In fact, its deal really
stumbled out of the gate, pricing below expectations ($18 vs. $19-$21) and
opening for trading with a 7% loss.
Some of its troubles can be attributed to shaky conditions in the IPO market, as volatility in the stock market has caused investors to take a more risk-averse stance in recent months. But some of the apprehension is also likely due to the company’s own surprisingly poor financial performance last year; revenue fell by 22% year/year from the fiscal year ended December 31, 2016 to that ended December 30, 2017. The dive in revenue was driven by an inventory situation caused by retail partners over-buying in the first half of 2016, in response to very strong demand in 2015 that resulted in selling shortages.
The combination of the unfavorable conditions and YETI's underwhelming FY17 results resulted in the disappointing pricing, and weakness continued to bother the stock through its first week of trading, sinking shares to the $14.50 area.
After the poor start, the stock rebounded back to its IPO opening price ($16.75), though it continued to languish below its $18 IPO price. This slow start, though, is playing a major role in today's move higher. That's because today, the quiet period expired, allowing firms involved with YETI’s IPO to publish research and estimates on the stock for the first time. And, since the stock has struggled, its valuation has remained attractive, creating a compelling risk/reward profile.
As we discuss in more detail below, analysts are clearly in agreement that YETI is an attractive stock at current prices. In fact, of the ten initiations we are seeing so far this morning, every single one landed on the bullish side. That is quite rare, as it is far more typical for at least one or two firms to come out with a more cautious view on a recent IPO.
The bullish initiations have popped the stock to new post-IPO highs, with shares reaching that $18 IPO price at highs earlier this morning, while also helping to swing the overarching sentiment around the stock to a more positive position.
YETI is a designer, manufacturer, and marketer of premium camping, hunting, fishing, and outdoor products. It is best known for its high-quality coolers. Since its founding in 2006, YETI has significantly expanded its product lines from durable coolers primarily built for hunting and fishing to drink-ware, travel bags, backpacks, outdoor chairs, blankets, apparel, and accessories.
As the company has expanded its product offerings, its customer base has also become more diverse. For instance, from 2015-2018, its customer base evolved from 9% female to 34% and developed from being comprised by 64% of customers aged 45 and under to 70%. Additionally, its business is not nearly as dependent on the hunting and fishing market as it was in its earlier years. Specifically, hunting and fishing now accounts for 38% of its customer base as compared to 69% in 2015. However, YETI also emphasizes that it considers staying true to its heritage to be a priority and that, to that end, it continues to invest and focus on the hunting and fishing markets.
The company has also significantly built out its distribution chain as it has grown. Today, it implements an omni-channel strategy, including its wholesale channel (70% of sales), which includes national and independent retailer partners, as well as its direct-to-consumer (DTC) channel. Its domestic retailer base includes major retailers such as Dick's Sporting Goods, REI, Bass Pro Shops, Ace Hardware, and Academy Sports + Outdoors. As of June 30, its retail partner base totaled 4,800 stores. Meanwhile, its DTC channel consists of online sites like YETI.com, YETIcustomshop.com, the Amazon Marketplace, and its flagship store in Austin.
Quiet Period Expiration
The quiet period expiration today is the equivalent of the analyst community pounding the table on the stock. Every firm we see out with an initiation so far this morning is bullish on the stock -- and some of those firms are very bullish. For example, Jefferies initiated the stock with a Buy and $34 price target -- a value almost double the stock’s current trading levels.
Also, the two most prominent firms to publish initiations today, Goldman Sachs and Morgan Stanley, are both bullish on the stock. Goldman assigned a Buy rating and a $27 target (+54% from recent prices) while Morgan Stanley rated the stock Overweight and applied a $20 target.
Other notable initiations include: BofA Merrill Lynch's Buy and $22 target; Outperforms at Robert Baird ($23) and William Blair; and an Overweight with a $23 target at Piper Jaffray.
To conclude, quiet period expirations can be hit-or-miss in terms of whether they translate into a catalyst for a stock. For YETI, the expiration was indeed a catalyst as it pushed shares to new highs.
Another catalyst for action looms, as the company’s first earnings report since its public debut is coming up soon, due on November 29.