RBC sees an attractive earnings setup for Adidas

Investing.com — Setup for Adidas AG (ETR:) stock ahead of its Q3 2024 report appears “attractive,” RBC Capital Markets analysts said in a Friday note.

“We expect Adidas (OTC:) to continue its strong revenue growth and gross margin momentum, with potential for a pre-release and FY24E guidance raise,” they noted.

“It also appears consensus may be under-appreciating 4Q24E EBIT delivery, taking into account one-off factors in the base and tight overhead cost control.”

The firm’s analysts raised their EBIT (earnings before interest and taxes) estimates for Adidas by 12% for FY24E and by 9% for FY25E. They also lifted the price target on the stock to €260 from €250.

Adidas is set to announce its Q3 2024 results on October 29, premarket. RBC anticipates that the sportswear giant might pre-release some information due to conservative EBIT guidance of €1.0 billion and strong underlying demand trends.

For the third quarter, RBC projects revenues of €6.40 billion, representing a 10% growth at constant exchange rates, or 14% excluding the impact of the Yeezy brand. The gross margin is expected to reach 50.7%, up from the previous year, with an EBIT of €542 million, marking an 8.5% margin.

The forecast by RBC also points to robust revenue growth across various regions, with Latin America, Emerging Markets, Greater China, and Europe all expected to post double-digit growth figures, while North America remains flat.

Factors such as product supply availability in the fourth quarter of 2024, new product launches for Spring/Summer 2025, soft macroeconomic conditions in China, and guidance on IAS 29 accounting standards are among the key elements to watch in the upcoming report, RBC points out.

The firm’s estimates are now 8% above the consensus for Adidas’s FY24E EBIT and 3% above for FY25E.

In terms of valuation, Adidas is trading at multiples that RBC considers attractive compared to the Western Sporting Goods sector average, with a price-to-earnings (P/E) ratio for the calendar year 2026 expected to be 23x, enterprise value to EBIT at 15x, and enterprise value to sales at 1.5x.