On Friday, CFRA analyst Zachary Warring updated the price target for Adidas AG (ETR:ADSGN) (ADS:GR) (OTC: ADDYY), raising it significantly from €150 to €195, while maintaining a Sell rating on the company's shares. The revision reflects a more optimistic outlook on the company's financial performance, despite continued caution from the analyst. The stock, currently valued at $47.64 billion by market capitalization, has shown strong momentum with a 50.58% return over the past year. According to InvestingPro analysis, the stock appears overvalued at current levels, trading at a P/E ratio of 106.79x.
Warring's new 12-month target price is set at €195, which represents a substantial increase from the previous €150 target. This new target is based on a 30.0x multiple of the firm's projected 2025 earnings per share (EPS), which is lower than Adidas (OTC:ADDYY)'s 10-year average forward price-to-earnings (P/E) multiple of 35.5x but still exceeds the average of its industry peers. InvestingPro data reveals that the stock is trading near its 52-week high of $135.68, with technical indicators suggesting overbought conditions.
The rationale behind maintaining the Sell rating, despite the improved price target, stems from the belief that Adidas's operating metrics, while on the mend, still lag behind those of its largest competitors. CFRA has kept its 2024 EPS estimate at €4.25 and raised its 2025 estimate by €1.50 to €6.50.
Adidas recently announced preliminary fourth-quarter revenues of €5.97 billion, marking a year-over-year increase of 24% and surpassing market expectations. The company's gross margin saw a notable expansion of 520 basis points year-over-year, reaching 49.8%. Operating profit was reported at €57 million, a significant turnaround from the €377 million loss recorded in the same period the previous year.
Despite these positive indicators, CFRA expresses skepticism towards the consensus among analysts, who anticipate Adidas to earn €7.82 per share in 2025. Warring suggests that such expectations might be overly optimistic and not sufficiently conservative. He acknowledges that sales and earnings for Adidas are likely to rise in 2025 but points out that the stock is currently trading at 37 times the estimated earnings for that year, which is well above the average of its peers. This high valuation, according to CFRA, leaves little margin for error.
In conclusion, while acknowledging the improvements in Adidas's financial performance, CFRA advises caution due to the stock's high valuation compared to its peers and sees more attractive investment opportunities elsewhere in the sector with better margins and more reasonable valuations. For investors seeking deeper insights, InvestingPro offers comprehensive valuation metrics, 15+ additional ProTips, and a detailed Pro Research Report that provides actionable intelligence for smarter investment decisions in Adidas and 1,400+ other top stocks.
In other recent news, sportswear giant Adidas reported a 19% rise in Q4 2024 revenues, with full-year profits showing a significant increase, as operating profit reached €1,337 million. The company also announced plans to cut up to 500 jobs at its headquarters in Herzogenaurach, Germany, as part of a broader effort to streamline its structure. In the realm of analyst evaluations, both Bernstein and Deutsche Bank (ETR:DBKGn) have upgraded their stance on Adidas, setting a price target of EUR300. Bernstein analysts have upgraded the stock from 'Market Perform' to 'Outperform', while Deutsche Bank reaffirmed their 'Buy' recommendation. The company also faced an ongoing European Union tax investigation, examining alleged tax irregularities amounting to €1.1 billion, but does not anticipate a significant financial impact from the matter. These are among the recent developments shaping the future of Adidas.
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