On Thursday, Morgan Stanley reaffirmed its positive stance on Adidas AG (ETR:), listed on XETRA as ADS:GR and over-the-counter as ADDYY, maintaining an Overweight rating and a price target of €258.00. The firm’s analysis suggests an upward revision of both revenue and profit forecasts for the company’s second quarter results.
The report anticipates a substantial sequential improvement in Adidas (OTC:)’ performance from the first quarter to the second, with growth rates expected to more than double, excluding foreign exchange and Yeezy brand impacts. This growth trajectory is in line with market expectations.
Morgan Stanley’s recent channel checks indicate that Adidas is likely to sustain strong revenue momentum in the upcoming quarters. Additionally, the firm projects that Adidas will surpass consensus estimates for profits in both the second quarter of 2024 and the full year, primarily due to significant gross margin expansion.
The analyst’s outlook reflects confidence in Adidas’ ability to outperform within the global sportswear sector. The assessment is based on the company’s operational strength and the expectation of continued growth and profitability in the near term.
Adidas’ stock performance and investor sentiment are likely to be influenced by these projections, as the company prepares to release its second-quarter results. The Overweight rating suggests that Morgan Stanley views Adidas as a favorable investment compared to its peers in the sportswear industry.
In other recent news, Adidas AG outperformed expectations in the first quarter of 2024, with an 8% increase in same-store sales and a remarkable rise in gross margin to 51.2%. This led to an upward revision of its full-year guidance. The company’s performance was driven by successful footwear franchises and product launches across various sports categories, despite a 4% decline in North America. E-commerce sales also surged by 34%, contributing to an overall operating profit of €336 million, up from €60 million the previous year.
Adidas is strategically focusing on its Samba and Gazelle sneakers, which have seen a dramatic increase in sales. Bernstein analyst Aneesha Sherman estimates that these shoes will generate approximately €1.5 billion ($1.61 billion) in sales this year, which would account for around 7% of Adidas’s overall revenue. In addition to these popular models, Adidas is promoting its Campus shoes and preparing to market its Superstar shoe more aggressively next year.
Investment firms Baird, TD Cowen, and Telsey Advisory Group have recently adjusted their price targets for Adidas, reflecting the company’s strong brand momentum and optimistic outlook. Baird increased its target to €240, while TD Cowen raised its target to €216, and Telsey moved its target to €245. These upgrades were based on Adidas’s positive first-quarter update, sales guidance suggesting potential for double-digit growth, and the revival of the Adidas brand.
Adidas is also introducing limited-edition collaborations, such as the $350 Y-3 Gazelle with Japanese designer Yohji Yamamoto, to keep its products fashionable and desirable. The company is taking strategic steps to maintain the popularity of its sneakers without becoming too dependent on them, and is diversifying its portfolio to avoid overreliance on a single product.
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