On Thursday, CFRA Research revised its stance on Adidas (OTC:ADDYY), downgrading the stock from "Hold" to "Sell" and reducing the 12-month price target from EUR165 to EUR150. This move reflects concerns over the sportswear giant's financial outlook amid currency challenges and competitive pressures.
Adidas has reported a EUR1 billion hit to its 2023 revenues due to unfavorable currency movements, a trend that is expected to continue into 2024. The company anticipates mid-single-digit growth in currency-neutral revenues for 2024, with an operating profit target of EUR500 million.
"We see downside ahead for shares due to the continued drag from its Yeezy exit, the negative currency translation, and continued competition in footwear and apparel from new brands like HOKA and ON," said CFRA Research in a note.
The revised price target of EUR150 is based on a forward price-to-earnings (P/E) multiple of 27.3 times CFRA Research's 2025 earnings per share (EPS) estimate. This valuation represents a decrease from Adidas's 10-year average forward P/E multiple of 32.6 times. Looking beyond a challenging 2024, the firm has adjusted its 2024 EPS estimate down by EUR3.50 to EUR2.50 and set a 2025 EPS estimate at EUR5.50.
Adidas has also released unaudited preliminary results for 2023, indicating a 5% decline in revenues to EUR21.4 billion. The operating profit for the same period fell sharply to EUR268 million, down from EUR669 million in 2022. The downgrade and revised price target reflect the analyst's view of the financial headwinds facing Adidas in the near term.
InvestingPro Insights
Following CFRA Research's downgrade of Adidas, real-time metrics from InvestingPro paint a nuanced picture of the sportswear company's financial health. With a market capitalization of $33.47 billion, Adidas is recognized as a prominent player in the Textiles, Apparel & Luxury Goods industry. Despite this, the company's adjusted P/E ratio for the last twelve months as of Q3 2023 stands at a negative -233.73, indicating that the company is not currently profitable.
Analysts have revised their earnings downwards for the upcoming period, aligning with CFRA Research's assessment of financial challenges. The InvestingPro data also shows a slight revenue decline of -2.78% for the last twelve months as of Q3 2023. Moreover, Adidas is trading at a high Price / Book multiple of 5.78, which may raise concerns about the stock's valuation relative to its net assets.
InvestingPro Tips suggest that while Adidas operates with a moderate level of debt, net income is expected to drop this year. However, there is a silver lining as analysts predict the company will be profitable this year, which could signal a turnaround for investors keeping a close watch on Adidas's performance metrics.
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