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Inditex shares target raised by RBC Capital on solid Q1 sales

EditorEmilio Ghigini
Published 06/06/2024, 04:06 AM

On Thursday, RBC Capital adjusted its price target for Inditex (BME:ITX:SM) (OTC: IDEXY) shares, increasing it to €48.00 from the previous €47.00, while maintaining a Sector Perform rating on the stock.

The revision follows the company's first-quarter earnings report, which revealed sales figures that exceeded expectations, although the gross margin was slightly below the anticipated level. Consequently, earnings per share (EPS) aligned with the estimates set forth by RBC Capital.

Inditex, the renowned fashion retailer, reported a robust start to the year. The slight sales outperformance in the first quarter was coupled with a gross margin that didn't quite meet projections, yet the company managed to deliver an EPS that matched the analyst's predictions. This balance between sales and profitability metrics was a key aspect of the company's quarterly financial outcomes.

The analyst highlighted a particularly encouraging aspect of Inditex's recent performance. From May 1 to June 3, the company experienced a 12% growth in sales in constant currency terms. This was a notable positive surprise and exceeded the analyst's own projections for the retailer's trading during this period.

Looking ahead to the second quarter, RBC Capital anticipates a 10% growth rate for Inditex, taking into account the company's performance against a high comparison base from the previous year.

Specifically, in the latter half of the second quarter last year, Inditex reported sales growth exceeding 20%, setting a challenging benchmark for year-over-year comparison.

Inditex's solid quarterly sales and the recent uptick in growth during the early part of the second quarter have provided a basis for RBC Capital's revised price target.

The company's performance in the face of past high comparatives will continue to be monitored as an indicator of its ongoing momentum and market position.

In other recent news, Inditex, the parent company of Zara, has been the focus of positive financial projections and strategic adjustments.

Following a strong first quarter, the company's shares target was increased by Jefferies to €51.00. The investment banking firm also slightly raised its earnings forecast for Inditex, noting the company's ability to achieve double-digit growth despite potential sales risks.

CFRA, a financial research firm, also raised its stock price target for Inditex to EUR52.00, citing confidence in the company's medium-term earnings resilience.

The firm anticipates that Inditex's local sourcing business model will strengthen its gross margin in FY25 and enhance store sales productivity.

HSBC upgraded its price target for Inditex to EUR51.00, attributing the increase to an upturn in the forecasted profit before tax for fiscal years 2025-26 and adjustments in their asset pricing valuation methodology.

In addition to these developments, Inditex reported a robust operating performance for the year 2023, with sales increasing by 10.4% and a 30% rise in net income to €5.4 billion.

The company plans to invest heavily in the coming year, focusing on optimizing commercial space, enhancing online platforms, and expanding logistics capacities. These recent developments reflect analysts' confidence in Inditex's financial performance and strategic direction.

InvestingPro Insights

Inditex's financial health and market performance underscore its robust position in the fashion retail sector. With a market capitalization of $155.77 billion, Inditex is a heavyweight in the industry. Its P/E ratio stands at 26.51, reflecting investor confidence in relation to its earnings. Notably, the company's PEG ratio, which measures the P/E relative to earnings growth, is an attractive 0.87 over the last twelve months as of Q4 2024, indicating that the stock may be undervalued given its growth prospects.

InvestingPro Tips highlight that Inditex (IDEXY) holds more cash than debt, suggesting a strong balance sheet, and has consistently raised its dividend for the past 4 consecutive years, demonstrating commitment to shareholder returns. Additionally, the company's cash flows can sufficiently cover interest payments, further reinforcing its financial stability. For investors seeking more in-depth analysis and additional tips, InvestingPro offers a comprehensive list, including the fact that Inditex has maintained dividend payments for 23 consecutive years. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover even more insights with the 11 additional tips listed on InvestingPro.

The company's recent performance, paired with these financial metrics, suggests that Inditex is well-positioned to maintain its growth trajectory and continue delivering value to its shareholders. As the company navigates the competitive landscape and strives to outperform its previous year's high sales benchmarks, these insights can help investors make informed decisions about their investments in Inditex.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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