Shares of Adidas were upgraded to buy on hold by analysts at Jefferies on Monday, citing optimism about the sporting goods retailer’s five-year plan.
The German sportswear giant presented its five-year strategy to 2025 last month after predicting a strong recovery in sales in 2021. The plan focuses on online sales and
The “direct-to-consumer” (DTC) activity to increase sales and bring profitability closer to that of its rival
while conquering market share.
It aims to double e-commerce sales to between 8 and 9 billion euros by 2025 and to increase sales by 8 to 10% per year. The company expects the operating margin to reach a level between 12% and 14%. This target margin range “encouraged optimism,” analysts at Jefferies said as they hiked the stock.
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“Our first assessment of the 2025 margin target was that of comfort. And a closer look at the long list of favorable winds (more DTCs, fewer shoes, considerable scale advantages, greater online maturity, a weaker US dollar…) has not diminished our optimism ” , they said. A combination of the direct-to-consumer shift, expansion of the company’s total addressable market, and industry growth clearly “support” Jefferies’ forecast for single-digit sales per year. They also forecast total returns to shareholders from 2021 to 2025 at a compound annual growth rate of 22%.
These returns are “attractive” to the stock price, which analysts said was “underestimated” on a 2023 price-to-earnings ratio of 23.2x.
“A delivery in line with the objectives put forward for 2021-25 would deserve a revaluation in a context of strong growth and quality, large-scale discretionary names”, they declared, raising their price target to 340 €, against the price of Friday closing of €. 280.
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Adidas has steadily gained market share in the United States over the past five years, thanks in part to the success of two shoes, the Yeezy and the Ultraboost. Regarding future potential in the United States, Jefferies said the company’s partnership with fashion designer Jerry Lorenzo in the basketball category is an “exciting opportunity.”
and Adidas were among Western companies that faced a backlash from Chinese consumers over human rights concerns. Jefferies analysts said the evidence so far suggests that “sales mostly hit Nike a few weeks ago, with reduced impact in recent days.”