Adidas Surges Higher, But Lack Of Catalysts Persists

Adidas AG (ADR) ADDYY shares were surging higher Thursday, one day after taking a dive amid fears that the company’s North American momentum was finally slowing following its fourth-quarter report.

The company launched a remarkable comeback in 2015 in North America and has doubled its sales in the past three years. The year 2018 marked a record year for Adidas, as the brand grew 17 percent in the region — although that figure was down from the 35 percent increase it saw in 2017.

“2018 was a record year for the adidas brand in North America and we’re proud of our growth in the largest sporting goods market in the world. We’re especially proud of our people, who made these great results happen, and initiatives like She Breaks Barriers, which raises awareness of the challenges women and girls face in sport.” Zion Armstrong, Adidas' North American president, said in a statement.

Cowen Sticks With Bullish Stance 

Cowen analyst John Kernan said Adidas is cheap on a relative basis, but he views the multiple as capped without a catalyst.

The Stan Smith and Superstar franchises were largely responsible for Adidas’ epic rise a few years ago, but both shoes have fizzled out in popularity, the analyst said. Adidas is now depending on its Ultraboost and Yeezy franchise to pick up the slack, which could potentially self-destruct the scarcity model the latter was built upon, he said. 

Kernan reiterated an Outperform rating on Adidas and maintained a 225-euro ($254.28) price target.

Wedbush Highlights 'Intense Competition'

Adidas delivered a fourth-quarter earnings beat driven by higher-than-expected sales and better gross margins, but sales in Europe and North America disappointed, Wedbush analyst Christopher Svezia said in a Thursday note. 

“Adidas is facing aggressive competition from brands small and large, including Nike, which is expanding the market [and] gaining share in the company's home turf,” the analyst said. 

A normalizing top line and slight gross margin expansion are not likely to drive multiple expansion, Svezia said. Supply chain restraints on apparel are also weighing on the company’s future outlook, and while the analyst said there is potential to capture some apparel production during the constraint, Adidas is still facing stiff competition.

“Furthermore, positive reception of new merchandise is also not a given, particularly in the face of intense competition from the likes of Nike Inc NKE, Puma, Champion and more." 

Wedbush maintains a Neutral rating on Adidas with a 195-euro ($220.38) price target.

Adidas shares were up 3.9 percent at $120.54 at the time of publication Thursday. 

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Photo by Patrik Ragnarsson/Wikimedia.