Adidas downgraded at HSBC: 'It is now time to take a breather'

Investing.com -- HSBC downgraded Adidas (OTC:ADDYY ) from Buy to Hold on Thursday, citing a lack of short-term catalysts and limited potential for earnings upgrades over the next six months.

The downgrade follows Adidas' pre-announcement of strong Q3 earnings on October 15, which failed to lift investor sentiment despite another upward revision in guidance.

According to HSBC, Adidas posted a 10% organic sales increase in Q3, or 14% excluding Yeezy, reflecting "an impressive performance in such a difficult consumer environment."

However, sales growth showed a slight slowdown from Q2, when organic sales grew 11% and 16%, excluding Yeezy. Despite the solid results, Adidas shares dropped on the day, underperforming the DAX index .

"It was the first time since the CEO's arrival at the helm of Adidas (in January 2023) that the share price did not salute the company guidance being lifted after a pre-announcement.," noted HSBC.

The analysts believe the market has fully priced in Adidas' "beat and raise strategy," leaving little room for further stock gains in the near term.

Looking ahead, HSBC sees limited opportunities for additional earnings upgrades. With Q4 typically being a "very promotional quarter" that is often only marginally profitable, the bank doubts Adidas will exceed its FY24 EBIT target of €1.2 billion.

Furthermore, the analysts do not expect significant changes to 2025 forecasts until Q1 2025 results are announced in April or May.

HSBC remains optimistic about Adidas' long-term potential, expecting the company to maintain a double-digit sales growth trajectory and gain market share against competitors like Nike (NYSE:NKE ).

However, it cautions that ongoing investments in performance categories and limited profitability in China could make it challenging to surpass Adidas' 2026 EBIT margin target of 10%.

HSBC lowered its target price from €300 to €260, reflecting the adjusted outlook, saying it is now time to "take a breather" on the stock.

Source: Investing.com