‘Messi mania’: Adidas stock raised to Buy at Bank of America on belief the brand is inflecting

Bank of America analysts upgraded Adidas (OTC:) stock to Buy from Neutral, with a revised price target of €235/$129.00 (previously €174/$98.30).

The firm’s updated earnings projection shows a roughly 40% increase in “recovered” EPS.

“We think that Adidas’ gross margin beat at 2Q23 results is the clearest indication yet that the brand is inflecting,” they said in a client note.

“The beat was underpinned by higher full price sell-through, with cyclical tailwinds yet to come. This leaves Adidas 1.5ppts away from its 50% mid-term guidance, which we think could now be exceeded (BofA estimate 51%).”

This strengthens Bank of America’s belief in the ongoing turnaround and its potential for mid-term earnings growth. Following the latest changes, Bank of America’s FY27E earnings projection stands 15% higher than consensus.

In terms of valuation, Adidas is valued at 19x Bank of America’s “recovered” EPS for CY23E (compared to Nike (NYSE:) at 31x and Puma (ETR:) at 26x).

“We see possible catalysts ahead (guidance raise 3Q23, new product launches 2H23, Capital Markets Day 2024),” the analysts added.