On Monday, Goldman Sachs adjusted its price target on shares of Birkenstock Holding plc (NYSE: NYSE:BIRK), increasing it to $59.50 from the previous target of $58.00, while maintaining a Neutral rating on the stock. The revision follows updates to the company's capital expenditure forecasts for the medium term, based on recent investor materials and foreign exchange impacts.
The firm has updated its model to reflect the latest information from Birkenstock's investor presentation and filing on June 26, noting a minimal impact on earnings from foreign exchange fluctuations. Goldman Sachs left its growth and margin forecasts for Birkenstock unchanged but revised capital expenditure (capex) assumptions downward. The new capex forecast anticipates €100 million for 2024, a reduction from the previous estimate of €117 million; €95 million for fiscal year 2025, down from €130 million; and €89 million for fiscal year 2026, decreased from €121 million.
Birkenstock's management has indicated an expectation of approximately €100 million in capex for fiscal year 2024, with a decline in absolute terms over the following years. Additionally, the company aims to double its production capacity from the fiscal 2022 level of 29.2 million pairs over the next few years. Goldman Sachs' revised capex forecasts, expressed as a percentage of sales, are 5.6% for fiscal year 2024, decreasing to 2.7% by fiscal year 2027.
In their long-term forecasts, which span a 10-year period, Goldman Sachs assumes capex as a percentage of sales will be 3.3% by 2034, consistent with the prior estimate. This is based on the production assumption of 73.2 million units by 2034, which is 2.5 times the 2022 level and 25% higher than the level implied by Birkenstock's plan to double production from the fiscal 2022 figure over several years.
The valuation for Birkenstock's price target remains driven by a discounted cash flow (DCF) analysis, with a 9.0% weighted average cost of capital (WACC) and a 2.5% long-term growth rate, both unchanged from previous assessments.
The updated price target reflects approximately a 3% increase in line with changes to long-term earnings and free cash flow forecasts. Based on revised forecasts, Birkenstock's calendar-adjusted enterprise value to earnings before interest and taxes (EV/EBIT) is projected to be 23 times in fiscal year 2024, declining to 18 times by fiscal year 2025, suggesting a robust growth profile.
However, when comparing Birkenstock's valuation to peers within the footwear and lifestyle sector, which have an average EV/EBIT of 22 times for fiscal year 2024, Goldman Sachs maintains its neutral position on the stock.
In other recent news, Birkenstock Holding plc has seen several noteworthy developments. The company released 14 million shares in a recent secondary offering, which included 10 million from L Catterton and 4 million from the company's management. Despite this, the total count of Birkenstock's shares remained unaffected, with no dilution of existing shareholders' equity.
In terms of financial forecasts, Birkenstock maintains its fiscal year 2024 guidance, expecting sales growth of over 20% and an EBITDA range of €535 to €545 million. Analysts from various firms have adjusted their ratings and price targets for Birkenstock. Citi reinstated the company with a 'Buy' rating, while UBS upgraded it from 'Neutral' to 'Buy', highlighting the company's successful direct-to-consumer expansion strategy and growth in the Asia-Pacific region. Deutsche Bank also resumed coverage, giving Birkenstock a 'Buy' rating due to the company's strong margins and potential for sustained revenue growth.
However, Goldman Sachs downgraded Birkenstock from 'Buy' to 'Neutral', while Stifel maintained its 'Buy' rating. These changes came after the company reported a 23% increase in currency-neutral revenue, leading to an upward revision of its annual guidance. These recent developments provide investors with key insights into Birkenstock's financial performance.
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