By
Bloomberg
Published
April 15, 2024
Fashion trends in athletic footwear are shifting in Adidas AG's favor amid rival Nike Inc.'s product innovation struggles, according to Morgan Stanley analysts.
Evolving trends are seeing people trade in their chunky basketball shoes that have helped build the Nike brand for more casual, rubber-soled, terrace-style Adidas sneakers, analysts including Edouard Aubin and Grace Smalley said.
The broker twice upgraded its recommendation on the German stock from underweight to overweight and raised its price target to 235 euros from 175 euros. At 11:18 a.m. in Frankfurt, the shares rose 4.4% to 205 euros.
“Our recent round of channel checks showed a notable inflection in Adidas' upcoming lifestyle outlook, indicating very strong and broadening underlying sell-off trends,” Aubin and Smalley wrote in a note Monday. Adidas can “opportunistically benefit” from Nike's innovation problems, while using a “more rational pricing approach” than its American competitor, they said.
The lack of freshness at Nike has been a complaint among Wall Street traders, with one analyst commenting last month that the sneaker and apparel maker was “losing its shine.” Last week, the company held the Nike Air Innovation Summit in Paris, where they unveiled new products to revive their fortunes.
The broker said it was previously underweight amid skepticism over the benefit of the doubt given to Adidas by investors. The clothing maker has suffered a series of setbacks, including the demise of its Yeezy partnership with rapper Ye and the loss of its sponsorship of the German soccer team to Nike.
Adidas now has 15 buy-equivalent recommendations, 14 holds and six sells among analysts tracked by Bloomberg. Aubin and Smalley's new target price of 235 euros implies an increase of 20% compared to the stock's close on Friday. So far this year, Adidas shares have risen 11%, while Nike shares have fallen more than 15%.
“With CEO Bjorn Gulden in place for almost 18 months, our checks point to improved positive sentiment in both Adidas' performance and lifestyle product, supported by improved levels of marketing and wholesale service, as well as a increasingly favorable market context,” the analysts wrote. “We view this revenue-generating momentum as powerful and now more than offsets the risks to the story.”
