On Holding shares upgraded to Neutral, revenue growth fuels improved valuation

On Monday, BofA Securities adjusted its stance on On Holding AG (NYSE: ONON), shifting the rating from Underperform to Neutral. The firm also significantly increased the price target for the company's shares, setting it at $55.00, up from the previous $21.00.

The upgrade comes after On Holding reported a notable 29% increase in constant currency revenue for the second quarter, with retail growth picking up speed at the beginning of the third quarter. According to the BofA Securities analyst, this performance positions On Holding as one of the fastest-growing entities in the European sporting goods and consumer discretionary sectors.

The analyst highlighted that On Holding's strong brand appeal and the potential for expansion into new market areas are contributing to its revenue growth. This growth is also leading to improved profit margins. Consequently, BofA Securities has raised its medium-term earnings expectations for On Holding by 10-24%, which aligns closely with the consensus view.

The decision to upgrade the stock rating to Neutral reflects the analyst's recognition of On Holding's sustained strong growth. Moreover, the price objective was revised upward to $55 following a change in the valuation methodology. The firm has shifted to a discounted cash flow (DCF) approach for valuation, moving away from the previous method that combined one-third DCF and two-thirds peer multiples.

In other recent news, On Holding AG has been the focus of several analyst upgrades and price target revisions. Stifel has raised its price target to $59, maintaining a Buy rating, while Piper Sandler assigned an Overweight rating with a price target of $52. KeyBanc reiterated an Overweight rating and a $47 price target, and TD Cowen increased its price target to $50. These adjustments reflect confidence in On Holding's financial performance and growth potential.

The company reported a significant 27.8% increase in net sales to CHF 567.7 million and a substantial rise in net income to CHF 30.8 million. These results were underpinned by the introduction of new technology and the upcoming launch of products like the Cloudboom Strike and Cloudsurfer Next. On Holding's management also reaffirmed its commitment to accelerating EBIT growth, indicating a strong second half for the company.

These recent developments underscore On Holding's commitment to innovation and growth. The company expects currency-adjusted sales growth of at least 30% and net sales of at least CHF 2.26 billion, with a gross margin around 60% for the full year of 2024.

InvestingPro Insights

On Holding AG (NYSE: ONON) has been making significant strides as reflected in its recent financial performance and analysts' outlook. With a robust increase in constant currency revenue and retail growth acceleration, the company is not only expanding but also improving its profitability. This has led to a positive reevaluation from BofA Securities, with a revised price target that suggests confidence in the company's growth trajectory.

InvestingPro data indicates that On Holding AG has a market capitalization of $15.99 billion and an impressive revenue growth of 28.49% over the last twelve months as of Q2 2024. The company's gross profit margin stands at nearly 60%, underscoring its efficiency and strong brand appeal. Additionally, the company's stock has experienced a significant price total return of 77.88% over the past year, highlighting investor optimism and market performance.

Among the InvestingPro Tips, two particularly stand out for On Holding AG. Firstly, the company holds more cash than debt on its balance sheet, which is a positive sign of financial stability and provides flexibility for future growth initiatives. Secondly, analysts anticipate sales growth in the current year, which aligns with the revenue growth observed. This expected sales growth is a testament to the company's strong market position and potential for continued expansion.

For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/ONON, which provide deeper insights into On Holding AG's financial health and market prospects.

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