Shares of this little-known footwear company can rally more than 30%, Piper Sandler says

Published Tue, Feb 21 20239:29 AM ESTUpdated Tue, Feb 21 20239:35 AM EST

It's time to buy Caleres ahead of the footwear company's earnings next month, according to Piper Sandler. Analyst Abbie Zvejnieks upgraded shares to overweight from neutral following a preannouncement from Caleres earlier this month that bolstered her confidence in the footwear stock. The Missouri-based company behind Famous Footwear and other brands said that it expects record annual sales and adjusted earnings per share for fiscal year 2022 when it posts results in March. "CAL positively pre-announced 2022 earnings and set an expectation for EPS > $4.00 on a go forward basis, emphasizing the structural earnings improvements CAL has made including the reduction of interest expense, share repurchases, store and brand closures, rationalization of SKUs, more strategic promotions, and store productivity gains," Zvejnieks wrote to clients on Monday. Caleres shares are outperforming this year, up 16% in 2023, better than the S & P 500's 6% gain. The footwear stock did relatively well last year as well, falling more than 1% while the broader index dropped 19%. However, the analyst's $35 price target, up from $26, is more than than 34% higher than Friday's closing price for the stock. Caleres shares jumped more than 3% in trading Tuesday. For Zvejnieks, improvements Caleres made during the pandemic suggest the footwear stock is now undervalued. Caleres lowered its debt, exited four underperforming brands and closed more than 200 stores, according to the note. It's also changed its promotional strategy to exclude certain brands, and curated a more premium assortment. All of these moves will help Caleres navigate a promotional environment and improve its earnings compared with 2019. "This has led to essentially flat retail sales with a square footage reduction of ~12%, which we think should power better Famous operating margin," read the note. "In CAL's 2/15 pre-announcement, management gave a floor of $4.00 on go forward earnings, which we think alleviates investor concerns around the transitory nature of 2021 margin gains." "With a necessary earnings reset for 2023, we now feel comfortable that CAL is undervalued," it continued. CAL 1D mountain Caleres shares 1-day —CNBC's Michael Bloom contributed to this report.