On Thursday, CFRA, a notable financial research firm, increased its stock price target on Inditex (BME:ITX:SM) (OTC: IDEXY), the parent company of the fashion retailer Zara, to EUR52.00, up from the previous EUR50.00. The firm has maintained its Buy rating on the stock.
The adjustment reflects the analyst's confidence in Inditex's earnings resilience over the medium term, citing a forward price-to-earnings (P/E) ratio of 28.2 times for the fiscal year 2025, which is above the company's five-year average forward P/E of 23.8 times. The firm raised its earnings per share (EPS) forecast for FY25 to EUR1.85, up from EUR1.80, while keeping the FY26 EPS projection steady at EUR2.00.
Inditex's financial year 2024 report, which began on February 1, showed a strong start to the year with an 11% increase in in-store and online sales through March 11. This growth was attributed to the positive reception of the spring and summer 2024 collections. Moreover, the company's gross margin expanded to 57.8%, exceeding the anticipated 75 basis point increase.
The analyst from CFRA believes that Inditex's adoption of a local sourcing business model will strengthen its gross margin in FY25. This strategy is seen as particularly advantageous as competitors face supply chain disruptions in the Red Sea region.
The firm remains optimistic about Inditex's growth potential, anticipating that the company will benefit from enhanced store sales productivity. The strong performance is supported by robust collections and the expected positive impact of additional retail space in FY25.
InvestingPro Insights
Inditex's (OTC: IDEXY) financial health and market performance further bolster CFRA's positive outlook. The company's strategic financial position is underlined by its ability to hold more cash than debt, as highlighted by one of the InvestingPro Tips. This liquidity provides Inditex with a solid foundation to navigate market uncertainties and invest in growth opportunities.
Moreover, the company's commitment to shareholder returns is evident, with a track record of raising its dividend for 3 consecutive years and maintaining dividend payments for 22 consecutive years, another InvestingPro Tip that underscores its financial stability and investor-friendly approach.
From a valuation perspective, Inditex's P/E ratio stands at 25.11, which is considered low relative to its near-term earnings growth potential. The company's revenue growth also remains strong, with a 10.37% increase in the last twelve months as of Q4 2024. Additionally, the gross profit margin of 55.7% during the same period reflects efficient operations and cost management.
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