Continued momentum within the wearables market should drive an inflection in Fossil Group's (FOSL) top and bottom line over the next 12 months, KeyBanc wrote in a note released today.
The firm upgraded shares of the accessories maker to "overweight" from "underweight," sending the stock up about 8% to $35.58 in late Wednesday afternoon trading.
KeyBanc estimates that the strong reception to new wearables will drive $175 million to $225 million in revenue for Fossil and 50 cents in per-share earnings over the next year.
Consumers have been especially fond of Fossil's $315 gunmetal Marshal smartwatch and Michael Kors's (KORS) $350 rose gold Access Bradshaw smartwatch, according to more than 150 channel checks by KeyBanc. Michael Kors first partnered with Fossil in 2004 to design and distribute watches under the Michael Kors label.
In addition to its agreement with Michael Kors, Fossil owns the Skagen brand.
KeyBanc claims that the Fossil and Skagen brands are "an underappreciated element of the Fossil story." Each of these lifestyle brands could generate $1.3 billion in revenue, representing between $2.0 billion and $2.4 billion in enterprise value, the firm said.
Other positive catalysts include expectations of lower expenses in the fourth quarter, restructuring efforts and "significant innovation in watch design" that could stabilize the watch market, KeyBanc noted.