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On Wednesday, Morgan Stanley (NYSE:MS) analysts, led by Luke Holbrook, downgraded Zalando SE (ETR:ZALG) (ZAL:GR) (OTC: ZLNDY) stock from Equalweight to Underweight, maintaining a price target of €28.50. The downgrade comes despite Zalando’s impressive 48% gain over the past year and a 13.5% rise year-to-date. The stock has shown resilience with a 3% increase since the tariff announcements on April 2, despite prevailing uncertainties in the online apparel market.
The analysts’ decision to downgrade is based on concerns over the competitive landscape and macroeconomic factors. According to InvestingPro data, Zalando currently trades at a P/E ratio of 34.8x, confirming the relatively high valuation concerns. While the company maintains strong fundamentals with €11 billion in annual revenue and a market cap of approximately €10 billion, analysts believe the risk-reward profile for Zalando is less attractive compared to its peers. InvestingPro subscribers have access to over 30 additional financial metrics and valuation insights.
The Morgan Stanley team has kept their estimates and price target for Zalando unchanged, valuing the company using a discounted cash flow (DCF) and reported P/E multiple method, which suggests a 19% implied downside to the current share price. Furthermore, they explored a valuation framework considering a potential combination of Zalando with About You, another online fashion retailer, which showed a valuation range of €18 to €40 per share, with €29 as the midpoint.
The analysts’ assessment reflects a cautious stance on Zalando’s future performance in light of the challenges posed by potential new entrants from Asia, who may offer competitive pricing in the European market. This could potentially impact Zalando’s market share and profitability, prompting the downgrade to an Underweight rating.
In other recent news, Zalando has been the subject of various analyst updates. CFRA analyst Nazmi Ghazali revised Zalando’s 12-month price target to €38.00 from €40.00, maintaining a Buy recommendation. This adjustment considers macroeconomic uncertainties that could affect global consumer spending. Despite the lower price target, Ghazali increased the 2025 earnings per share (EPS) estimate for Zalando to €1.15, up from €1.00, and introduced a 2026 EPS forecast of €1.40. Meanwhile, Bernstein SocGen Group raised its price target for Zalando to €21.00 from €19.00 but maintained an Underperform rating. Bernstein expressed concerns about Zalando’s valuation, noting it appears high compared to global apparel peers. The firm is skeptical about Zalando’s mid-term growth prospects, expecting the growth outlook to potentially fall short of expectations. Both analyst updates reflect differing perspectives on Zalando’s potential in the evolving e-commerce landscape.
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