On Wednesday, TD Cowen made an adjustment to its stock price target for Adidas AG (ETR:ADSGN) (ADS:GR) (OTC: ADDYY), lowering it slightly from EUR267.00 to EUR262.00, while maintaining a Hold rating on the shares. The financial firm acknowledged the management's positive trajectory and their confidence in achieving a 10% EBIT margin by the fiscal year 2026. However, some caution was advised regarding the modeling into the fiscal year 2025.
TD Cowen raised questions about the future growth potential of Adidas (OTC:ADDYY), especially considering the exclusion of the €600 million in Yeezy sales and €150 million in Yeezy EBIT for the fiscal year 2024 estimates. The firm highlighted the challenges Adidas may face in achieving double-digit year-over-year growth without the Yeezy contribution, which has been a significant part of the company's recent success.
The consensus among industry observers suggests a low-teens sales growth for Adidas, excluding Yeezy, and nearly €700 million in incremental EBIT. TD Cowen's statement reflects a degree of skepticism about whether these expectations are achievable given the absence of Yeezy-related revenue in the upcoming fiscal year.
Adidas has been relying on its Yeezy line for a boost in sales and EBIT, and with the forecasted exclusion of this revenue stream, the company's financial performance may be impacted. The adjustment in the price target by TD Cowen indicates a careful approach to Adidas' valuation in light of these considerations.
The Hold rating suggests that TD Cowen sees no immediate catalyst for a significant change in Adidas' stock price, encouraging investors to maintain their position without buying more shares or selling existing holdings. The new stock price target of EUR262.00 provides a reference point for the market, reflecting the firm's current assessment of Adidas' worth.
In other recent news, Adidas AG has experienced significant developments. The company's largest shareholder, Groupe Bruxelles Lambert, has reduced its stake in the company to 3.51%. Despite this, Adidas has reported an increase in sales within Greater China and North America, excluding the Yeezy collection, indicating a strong underlying market performance.
Analysts at RBC Capital Markets have adjusted their outlook on Adidas, increasing the price target to €265 from €260 while maintaining an Outperform rating. This decision follows Adidas's positive pre-announcement of its third-quarter 2024 results, which revealed a nine-month EBIT contribution surpassing the full-year 2024 guidance expectations.
Adidas is also capitalizing on market space left by its rival Nike Inc (NYSE:NKE), which has been facing ongoing challenges. The company has seen a surge in demand for its Samba and Gazelle terrace sneakers, contributing to a significant boost in sales. Amid these developments, Adidas continues to release new colorways and materials for popular models, strategizing to maintain interest among shoppers.
On another note, RBC Capital anticipates that Adidas will continue its robust revenue growth and gross margin momentum into the third quarter of 2024. The firm suggests that the market may not be fully recognizing Adidas' potential earnings before interest and taxes (EBIT) for the fourth quarter of 2024, which takes into account certain one-time factors that affected previous results and the company's effective overhead cost management.
InvestingPro Insights
To complement the analysis provided by TD Cowen, recent data from InvestingPro offers additional context on Adidas' financial position and market performance. Despite the challenges highlighted in the article, InvestingPro Tips indicate that Adidas' net income is expected to grow this year, and the company is trading at a low P/E ratio relative to its near-term earnings growth. This suggests potential upside for investors, even as the company navigates the post-Yeezy landscape.
The company's market capitalization stands at $42.89 billion, reflecting its significant presence in the Textiles, Apparel & Luxury Goods industry. Adidas has demonstrated strong performance over the past year, with a 34.85% price total return. This aligns with the article's mention of recent success, though it's important to note that this figure includes the Yeezy contribution.
For investors seeking a deeper understanding of Adidas' potential, InvestingPro offers 11 additional tips, providing a comprehensive view of the company's financial health and market position. These insights could be particularly valuable as the market recalibrates expectations for Adidas in the absence of Yeezy sales.
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