Getty Images
Adidas stock was upgraded to buy from hold by Jefferies analysts on Monday, citing optimism over the sporting-goods retailer’s five-year plan.
The German sportswear giant set out its five-year strategy to 2025 last month after predicting a strong sales recovery in 2021. The plan focuses on online sales and
’ ‘direct-to-consumer’ (DTC) business to increase sales and lift profitability closer to that of its rival
Nike,
while also grabbing market share.
It aims to double e-commerce sales to between €8 billion and €9 billion by 2025 and increase sales by 8-10% per annum. The company expected operating margin to reach a level of between 12% and 14%. That target margin range “encouraged optimism,” Jefferies analysts said as they upgraded the stock.
Read:Alibaba Was Fined $2.8 Billion by China. Why Its Stock Is Gaining.
“Our first take on the 2025 margin target was that of comfort. And closer scrutiny of the long list of tailwinds (more DTC, less footwear, sizable scale benefits, greater online maturity, weaker U.S. dollar …) has not diminished our optimism,” they said. A combination of the direct-to-consumer shift, an expansion of the company’s total addressable market and industry growth “clearly back up” Jefferies’ forecast for high-single digit sales per annum. They also forecast total shareholder returns for 2021 to 2025 at a 22% compound annual growth rate.
Those returns are “attractive” for the stock price, which the analysts said was “underappreciated” on a 2023 price-to-earnings ratio of 23.2x.
“A delivery consistent with the targets put forward for 2021-25 would deserve a rerating within the context of high growth and quality, large scale discretionary names,” they said, raising their target price to €340, compared with Friday’s closing price of €280.
Read:Buy Tesla Because It Could Be the Next Apple. Here’s How.
Adidas has consistently gained market share in the U.S. over the past five years, partly down to the success of two shoes—the Yeezy and the Ultraboost. When it comes to future potential in the U.S., Jefferies said the company’s partnership with fashion designer Jerry Lorenzo in the basketball category is an “exciting opportunity.”
and Adidas were among the western companies that have faced a backlash from Chinese consumers over human rights concerns. Jefferies analysts said the evidence so far suggested a “sales hit mostly to Nike a couple of weeks ago, with a reducing impact in more recent days.”
