Adidas (OTC: ADDYY) shares have delivered a solid performance over the last year.
The stock is up 90% since its March 2020 bottom, and is up 42% over the last 12 months.
But Adidas has traded sideways since the start of the year, and is down nearly 9% year-to-date.
Even still, Jefferies analysts upgraded the stock this week from Hold to Buy citing the sportswear retailer’s five-year plan, and boosted their stock price to €340 (or $406).
Adidas released its five-year plan last month, targeting sales growth of as much as 10% annually through 2025 as it doubles down on e-commerce and sustainable materials. The German sporting-goods maker is forecasting a surge in online sales and the steady build-out of shoes and apparel made from recycled materials to help boost profits by as much as 18% a year, with mid-teens percentage growth in products for women.
The five-year “Own the Game” plan was developed by CEO Kasper Rorsted, who took over the helm in 2016 and has streamlined operations amid a prolonged boom in retro footwear, which has driven the shoemaker’s shares higher since before the pandemic.
The Jefferies analysts said the company’s expected operating margin of between 12% and 14% “encouraged optimism.”
“Our first take on the 2025 margin target was that of comfort,” the analysts said. “And closer scrutiny of the long list of tailwinds (more DTC, less footwear, sizable scale benefits, greater online maturity, weaker U.S. dollar…) has not diminished our optimism.”
The analysts added that the combination of the direct-to-consumer shift, an expansion of the company’s total addressable market and industry growth “clearly back up” their forecast for high-single digit sales per year. What’s more, the analysts forecast total shareholder returns for 2021 through 2025 at a 22% compound annual growth rate.
Such returns are “attractive” for the stock, which the analysts said is “underappreciated” on a 2023 price-to-earnings ratio of 23.2 times.
“A delivery consistent with the targets put forward for 2021-25 would deserve a rerating within the context of high growth and quality, large scale discretionary names,” the Jefferies analysts said.
Adidas has been gaining market share in the U.S. over the past five years, winning fans with their Yeezy and Ultraboost shoes, and Jefferies said the company’s partnership with fashion designer Jerry Lorenzo in the basketball category is an “exciting opportunity.”
The company also recently teamed up with Peloton (NASDAQ: PTON) to create a co-branded apparel collection. The “Adidas x Peloton SS21 collection” marks the start of a collaboration between the two high-profile brands that will feature neon hues, text graphics and “nods to a ‘90s attitude” in an 11-piece collection ranging from $30 to $85.
“During a time where we are not able to be physically together, we have an incredible opportunity to help grow connected communities and continue to support people as they build their new fitness journeys at home,” Adidas General Manager of Global Training Aimee Arana said in a statement announcing the partnership.