Investing.com -- Adidas (ETR:ADSGN) (OTC:ADDYY) stock may be poised for a near-term outperformance, as per analyst from Baird. Despite maintaining a “neutral" rating on the stock, the analysts have expressed a more optimistic short-term outlook, pointing to several catalysts that could drive upside into the end of the year.
These include solid brand momentum, strong performance in key regions, and potential upward revisions to earnings expectations for 2025.
Baird flagged several positive signals for Adidas, particularly the strength in its terrace footwear segment, distribution expansion, and outperformance in the Chinese market.
These factors, they argue, have been underappreciated by the market and could serve as near-term growth drivers.
Additionally, the company’s upcoming sell-side focused call early next week, along with a potential pre-release of earnings in October, could boost confidence and act as a catalyst for upward stock movement.
Adidas has been gaining momentum in recent quarters, supported by strong sales in Europe and improving performance in North America, where the brand is modeling 5% growth.
The analysts project a solid third quarter, raising their earnings per share estimate to €2, assuming revenue growth of 16% year-over-year, ex-currency and ex-Yeezy sales.
They also expect the company’s operating profit to reach €520 million, representing a 7.9% margin.
The analysts further point out that search trends for Adidas’s classic models like Samba, Gazelle, and Spezial remain strong, and the brand’s appeal in both performance footwear and lifestyle segments is growing.
Moreover, Adidas’s recent execution improvements in China, where sales grew by 9% last quarter, are likely to continue contributing to its relative outperformance in the region.
Additionally, analysts at Baird are also raising their EPS estimates for 2025, expecting it to reach €7.50, in line with consensus.
However, they note that the potential for even stronger performance could push buy-side EPS expectations above €8 per share, which, combined with a price-to-earnings (P/E) ratio in the low 30s, could result in over 10% upside for the stock by year-end.
Despite the favorable short-term outlook, the analysts remain cautious about the company’s longer-term prospects, particularly in light of Nike’s expected comeback and potential challenges in Adidas’s product pipeline over the next 6 to 12 months.
They argue that Adidas will need to reinforce investor confidence in its ability to scale retro styles and sustain innovation, particularly with the anticipated return of its popular Superstar line.
Nevertheless, Baird’s analysts emphasize that Adidas is well-positioned to capitalize on strong global athletic and athleisure trends, as well as its own product innovation efforts.
The company’s "Earn the Game" strategy under CEO Bjørn Gulden, which focuses on improving profitability and driving EBIT margin expansion, is seen as a key factor that could unlock long-term growth potential.
“With 28% of revenues coming from North America, and its largest market segment (EMEA) representing 38% of total revenues, Adidas is positioned as a truly global company,” the analysts said.
While the company faced challenges in China last year, including a 31% drop in sales, it appears to be turning a corner in this important market, which should provide a tailwind for future growth.
Baird raised its price target for Adidas to €260, up from €255, applying a 25X P/E multiple to its 2026 earnings estimate of €11.40 per share. The analysts note that this valuation is justified by the company’s growth prospects under its current strategy, which aims for a double-digit EBIT margin by 2026.
While Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU) may offer slightly better valuations in terms of near-term risk-adjusted returns, Baird believes that Adidas’s ability to execute on its turnaround plan and deliver consistent results could make it a strong performer in the near term.
Shares of Adidas were trading 1.6% higher on Friday.