On Tuesday, UBS updated its assessment of Zalando SE (ZAL:GR) (OTC: ZLNDY), increasing the price target to EUR27.50 from the previous EUR26.00 while keeping a Neutral rating on the stock. The adjustment follows a notable 30% surge in the company's share value over the past month, which, according to UBS, suggests that investors are anticipating a significant third-quarter earnings before interest and taxes (EBIT) beat compared to consensus estimates, as well as an upward revision to the higher end of Zalando's full-year 2024 EBIT guidance of €450 million.
The firm noted several factors that point to a robust September performance for Zalando, including increased engagement on the company's own app, positive industry data from Textilwirtschaft, and strong current trading reports from H&M. Despite these positive signs, UBS is waiting for October data to fully assess the growth trajectory excluding any unseasonal weather effects, as September's results may not be as surprising given the year-over-year comparison.
Looking ahead, the discussion among investors is expected to shift towards Zalando's growth prospects for FY2025, with consensus estimates predicting a 7% increase in Gross Merchandise Volume (GMV) and a 6% rise in revenue. UBS acknowledges Zalando's position as Europe's largest fashion platform with top-tier logistics, potentially leading to a favorable EBIT growth narrative. However, the firm maintains a cautious stance due to the absence of a clear mid-term recovery in business-to-consumer (B2C) app and web metrics.
UBS suggests that if Zalando does not provide reassurance regarding B2C recovery in the forthcoming October data, which could lead to positive revisions for fourth-quarter and full-year 2025 estimates, there is a possibility that the stock may relinquish some of its recent gains.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Zalando's financial position and market performance. The company's market capitalization stands at $8.48 billion, with a P/E ratio of 50.87, indicating that investors are willing to pay a premium for Zalando's earnings. This aligns with UBS's observation of the recent 30% surge in share value, suggesting high investor expectations.
InvestingPro Tips highlight that Zalando holds more cash than debt on its balance sheet, which could provide financial flexibility as the company navigates market challenges. Additionally, net income is expected to grow this year, potentially supporting UBS's anticipation of a strong Q3 EBIT performance.
The stock's strong return over the last month and three months, as noted by InvestingPro, corroborates UBS's report of the 30% share value increase. However, the tip that the stock price movements are quite volatile suggests investors should remain cautious, echoing UBS's wait-and-see approach regarding October data.
For readers interested in a deeper analysis, InvestingPro offers 8 additional tips for Zalando, providing a more comprehensive view of the company's financial health and market position.
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