Is YETI Stock an Outlier or a Sign of a Strong Brand?

Key Points

• YETI stock is hanging on to gains after delivering a beat-and-raise earnings report.  
• The report suggests that the premium consumer may not be as worn out as some data suggests.
• Lower interest rates may fuel demand for a stock trading at around 17x forward earnings.  

Earnings season is always good for a few surprises. One name that's surprising to the upside is YETI Holdings Inc. (NYSE: YETI). The company, which makes iconic coolers and focuses on those who love the outdoors, beat expectations with earnings per share (EPS) of 70 cents on revenue of $463.50 million.  

Both numbers beat analysts' expectations, but the year-over-year (YoY) growth was particularly impressive. Revenue was up 13% YoY, and EPS was up 37% YoY. The company also raised its forward guidance. Sales in the current quarter are expected to be in a range of 8% to 10% versus the prior guidance of between 7% and 9%. Adjusted net income is expected to be in a range between $2.61 and $2.65 per share above prior guidance of $2.49 to $2.62. 

During a week that saw stocks under considerable pressure and growing concerns about a tapped-out consumer, this report was hard not to notice.  

Investors sure didn't. YETI stock jumped approximately 17% after the report to around $43.50 per share. That nearly had the stock busting above a resistance level established in June. However, the stock is still down 19% year-to-date, which could make this a buying opportunity. But first, investors looking to get involved have some things to consider. 

YETI's Positive Earnings Report Could Mean Many Things 

What makes YETI's earnings results more surprising is that the company's products are firmly in the discretionary category. Furthermore, YETI is a premium brand.  

On the one hand, that indicates that the company attracts consumers with the income to invest in high-end products. This supports the bifurcated economy thesis that has settled in. That is, those that have the means to spend continue to do so.  

If that's the case, consumers have had reasons to buy YETI products in the past few months. The company has an entire product line geared to the back-to-school market. This quarter also covered the start of camping season and Father's Day.  

To expand its target audience, YETI recently announced a licensing agreement with the National Football League and a team partnership with the Dallas Cowboys. This comes just in time for tailgate season across the country. And it's just one of the numerous corporate partners that use the company's products as rewards and gifts. 

On the other hand, the market has seen other companies with premium brands such as Lululemon Athletica Inc. (NASDAQ: LULU) deliver solid earnings. Yet, LULU stock is down more than twice YETI stock in 2024.  

Some may argue that Lululemon's stock troubles boil down to concerns over execution and innovation. But it's still worth noting that the two stocks are on much different paths.

Then There's a Practical Angle for YETI

Anyone who's been without power for several days or had an appliance stop working knows that one of the biggest concerns is food spoilage, particularly of frozen food. YETI coolers can help keep fresh and frozen food protected for days.

It's not something that consumers will list as their first reason for owning a  YETI product, however, at a time when food costs remain elevated, having a backup plan could make the company's products a worthwhile investment.  

That may also explain the company's significant increase in international cooler sales, which were up 35% and 12% higher than U.S. sales. 

Is YETI Stock Undervalued?  

The YETI analyst forecasts on MarketBeat give YETI stock a consensus Hold rating with a price target of $46.29. That's a 10% gain from the stock's closing price on August 15, 2024. The price target also aligns with projected earnings growth of around 13%, which is the argument for a fairly valued YETI stock.  

However, despite the recent stock price gains, YETI stock has a forward P/E ratio of around 17x earnings. That's below the sector average for consumer discretionary stocks, which is around 22x. Could that mean that the stock is trading at a discount? 

Lower interest rates may be the deciding factor. If there's latent demand being held back, it may start showing up in the company's reports in the back half of the year. There's a large gap to fill to YETI stock's 52-week high, but that could be a reward for patient investors.