KeyBanc initiated coverage of On Holding AG (NYSE:ONON) with an Overweight rating and $42 price target in a note Tuesday while also raising the price target for Overweight-rated lululemon athletica (NASDAQ:LULU) to $425 per share.
KeyBanc analysts told investors that On is a "premium sportswear brand" that "continues to grow its brand awareness due to grassroots campaigns as well as its innovative and unique product line."
"FY23 guidance looks to be conservative (implies +42% y/y growth), entailing a significant slowdown from 1Q results (+78% y/y to mid-50% growth guidance for 1H). Given the brand's current momentum, we believe that ONON has the potential to deliver upside while driving margin expansion and mid-teens EBITDA in 2023," they wrote. "While we model growth slightly above consensus for FY23/FY24, we believe there's much more room for ONON to grow as it integrates new technology within its DTC platform/expanded offerings."
They believe ONON has a multiyear growth story sitting in front of it with several levers of opportunity due to "best-in-class innovation as well as increasing brand awareness."
On LULU, the analysts said the price target increase reflects its conviction in the company's growth expectations.
"We believe LULU could deliver ~17% top-line growth this year, and while that marks a sequential slowdown from 2023, we believe demand is still robust and estimates could prove to be conservative due to the ongoing casualization of apparel, increasing brand awareness, international expansion, and new/innovative products," they wrote.
The analysts also noted that the firm views Greater China as a significant near and mid-term opportunity for the brand.