Markets

Adidas’ Comeback Plan: China, Messi, and No More Yeezy

Published

June 17, 2023

Adidas
has committed some unforced errors in the past, but at least one analyst thinks that a hat trick is at hand. Bernstein analyst Aneesha Sherman upgraded the German sportswear giant to Outperform from Market Perform this past week, raising her price target to 190 euros ($204.50) from €155. “Adidas brand heat languished through 2022,” Sherman wrote. “Now we are seeing it heat up again.”

Sherman sees three factors stoking Adidas stock. First, its China business, which had fallen behind rivals, is reviving. (Adidas’ fashionable Samba and T-toe styles have also been selling well globally.) In the U.S., Lionel Messi, fresh off last year’s World Cup win, agreed to join Major League Soccer’s Inter Miami, partially owned by soccer legend David Beckham. Adidas has sponsored Messi for 15 years. Third, Yeezy shoes recently sold out without backlash for the brand, allowing Adidas to escape the inventory overhang produced by its costly break with rapper Kanye West.

These factors set up 2024 for growth, Sherman writes, adding that it isn’t a leap of faith to assume the shares are too cheap, despite its American depositary receipts rocketing up nearly 40% this year to $95.13. Even if the company undershoots its income margin goal of 10%—Sherman’s model has a slightly lower margin—a return to high-single-digit revenue growth “already gives us considerable upside.”

Adidas’ gains this year stand in contrast to
Nike,
which is down nearly 12% in 2023. Nike and
Foot Locker
got frosty reactions from investors after reporting earnings. Meanwhile, Adidas has been on a winning streak along with
Dick’s Sporting Goods
and
Lululemon Athletica,
whose stocks jumped on strong results.

Write to Teresa Rivas at [email protected]

Next Week

Monday 6/19

Equity and fixed-income markets are closed in observance of Juneteenth National Independence Day.

Raytheon Technologies
hosts an investor meeting in Paris coinciding with the Paris Air Show.

The National Association of Home Builders releases its Housing Market Index for June. Consensus estimate is for a neutral 50 reading, matching the May data. The index has increased for five consecutive months and reached the midpoint mark of 50 for the first time since July of 2022, as limited existing inventory has lifted home-builders’ confidence.

Tuesday 6/20

FedEx
reports fourth-quarter fiscal-2023 results.

The Census Bureau releases residential construction data for May. Economists forecast a seasonally adjusted annual rate of 1.4 million housing starts, roughly even with April.

Wednesday 6/21

Fed Chairman Jerome Powell appears before the House Financial Services Committee for the Fed’s semiannual monetary-policy report. Powell will then testify before the Senate Banking Committee on Thursday.

Dollar Tree
hosts its 2023 investor conference in Norfolk, Va.

Equinix
holds its 2023 analyst day.

Thursday 6/22

Accenture,

Darden Restaurants,
and
FactSet
hold conference calls to discuss earnings.

NRG Energy
hosts its 2023 investor day.

The Bank of England announces its monetary-policy decision. The central bank is all but assured of raising its base rate for a 13th consecutive meeting, most likely by a quarter of a percentage point to 4.75%. The United Kingdom has one of the highest rates of inflation among developed countries, and traders are expecting at least four more interest-rate hikes by the end of the year after the coming meeting.

The Conference Board releases its Leading Economic Index for May. The index is expected to decline 0.4% month over month and has fallen for 13 straight months. The Conference Board continues to predict a mild recession beginning in mid-2023, despite stronger-than-expected economic data in recent weeks that have pushed the S&P 500 index to its highest level since April of 2022.

The National Association of Realtors reports existing-home sales for May. The consensus call is for a seasonally adjusted annual rate of 4.25 million homes sold, slightly fewer than in April. After declining for 12 straight months through this January, existing-home sales have rebounded, although they remain well below historical levels.