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Investing.com -- BNP Paribas (OTC:BNPQY) has initiated coverage on Adidas (OTC:ADDYY) with an "outperform" rating, setting a target price of €290 for the stock and $165 for its ADR, in a note dated Wednesday.
The analysts cited a combination of medium-term revenue growth and improving margins as the foundation for the positive outlook.
The brokerage notes that Adidas is benefiting from structural shifts in the sporting goods sector, which have been accelerated by the Covid pandemic.
Under CEO Bjørn Gulden, who previously led a turnaround at Puma (OTC:PMMAF), brand momentum has strengthened over the past nine years. Gross margins and profits have exceeded expectations, according to the analysts.
Valuation is based on a discounted cashflow model. Key assumptions include a 9-year sales CAGR of approximately 6.8% and a long-term EBIT margin of about 13%.
BNP Paribas uses a weighted average cost of capital near 11%, based on a 4% risk-free rate, 7% equity risk premium and an unlevered beta close to 1.
A real terminal growth rate of 1.5% in 2034 is applied, reflecting nominal growth of 3.5%. For the ADR, the valuation includes a EUR/USD exchange rate of 1.135.
The analysts identify upside risks linked to a quicker-than-expected recovery in profits and brand momentum, particularly given what they describe as conservative guidance from management.
Further upside could also come from normalized market conditions in the U.S., gains in market share from new products, and improved brand heat.
There are, however, risks to the downside as well. The U.S. government may increase tariffs, which could result in higher prices and reduced demand.
Another concern is that management’s 2026 margin guidance may appear overly optimistic if brand momentum fails to materialize or if new product reception is weak. Additional external risks include challenges from currency movements and tariffs.