On Wednesday, Goldman Sachs adjusted its stance on Birkenstock Holding plc (NYSE: NYSE:BIRK), downgrading the stock from Buy to Neutral. The firm also increased the price target to $58 from the previous $54.20. The change in rating follows a period of strong performance by Birkenstock shares, which the firm believes has incorporated the expected near-term momentum into the current price level.
The new price target set by Goldman Sachs is based on a discounted cash flow analysis, maintaining a weighted average cost of capital (WACC) at 9.0% and a long-term growth rate at 2.5%. These figures remain unchanged from previous estimates. The 7% increase in the target reflects Goldman Sachs' updated forecasts for Birkenstock's long-term earnings and free cash flow over a ten-year forecast period.
Goldman Sachs acknowledges the robust long-term investment thesis for Birkenstock, citing the company's favorable earnings and free cash flow forecasts. According to the firm's estimates, Birkenstock's calendar-adjusted enterprise value to EBIT (EV/EBIT) ratio is projected to be 24x in the fiscal year 2024, which is expected to decrease to 19x by the fiscal year 2025. This projection underscores Birkenstock's strong growth trajectory.
The valuation of Birkenstock is compared to its peers in the footwear and lifestyle sector, which includes companies like ON, Nike (NYSE:NKE), Deckers, VF Corp (NYSE:VFC), Lululemon (NASDAQ:LULU), and Canada Goose. With these peers averaging a 22x EV/EBIT for the fiscal year 2024, Birkenstock's valuation represents a 9% premium. This is a notable shift from a 5% discount in November, suggesting a reevaluation of Birkenstock's market position relative to its competitors.
In other recent news, Birkenstock Holding plc has been the focus of several positive analyst adjustments following strong financial performance. Stifel has raised its price target to $63, maintaining a Buy rating, due to a reported 23% increase in currency-neutral revenue and exceeding adjusted EBITDA expectations. BMO Capital Markets, Baird, and Telsey Advisory Group have also increased their price targets to $60, $65, and $63 respectively, all maintaining Outperform ratings. This comes after Birkenstock reported robust sales and earnings, leading to an upward revision of its annual guidance.
Jefferies has also raised its price target for Birkenstock to $65, reiterating a Buy rating, following the company's announcement of strong second-quarter results. These adjustments are based on the company's latest financial guidance, which anticipates revenues between €1.77 billion and €1.78 billion for the fiscal year 2024. Adjusted EBITDA is also expected to climb, with projections set at €535 million to €545 million.
InvestingPro Insights
Following the recent Goldman Sachs rating update on Birkenstock Holding plc (NYSE: BIRK), key financial metrics and market sentiment indicators from InvestingPro provide additional context for investors. Birkenstock's market capitalization stands at a robust $11.11 billion, reflecting its significant presence in the industry. The company's impressive gross profit margin over the last twelve months as of Q2 2024 is reported at 60.85%, indicating strong operational efficiency and pricing power within its segment. Despite a high price-to-earnings (P/E) ratio of 100.68, which suggests a premium valuation, analysts have revised their earnings upwards for the upcoming period, signaling confidence in Birkenstock's future performance.
InvestingPro Tips highlight that while the stock is currently trading near its 52-week high and may appear overbought with an RSI suggesting such territory, Birkenstock's liquid assets exceed its short-term obligations, providing financial flexibility. Additionally, the company's revenue growth remains robust with a 21.38% increase over the last twelve months as of Q2 2024. For investors seeking to delve deeper into Birkenstock's financials and market position, more InvestingPro Tips are available, which can be accessed with an exclusive offer using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
It's worth noting that Birkenstock operates with a moderate level of debt and is expected to grow its net income this year, which may further justify its current valuation multiples. For a comprehensive analysis and to explore the additional 16 InvestingPro Tips, investors are encouraged to visit InvestingPro.
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