Puma shares jump 5% after BofA lifts rating to “neutral,” ups price target to €23

Investing.com -- Shares of Puma SE (ETR:PUMG) jumped more than 5% on Wednesday after BofA Securities upgraded the German sportswear maker to “neutral” from “underperform” and raised its price objective to €23 from €14, citing lower estimate risk and improved valuation assumptions.

The move reflects a shift in analysts’ outlook as consensus forecasts for the company’s 2025 earnings align more closely with the bank’s projections. 

Puma’s stock traded at €20.80 prior to the upgrade, implying an upside potential of about 10%.

BofA said visibility on the company’s performance remains limited, but the risk tied to its financial estimates has eased. 

The brokerage cut its weighted average cost of capital (WACC) in its discounted cash flow model to 10% from 13% and reduced Puma’s valuation discount to peers to 25% from 50%. 

The analysts noted the stock’s valuation remains low at 0.8 times sales, compared with 1 to 3 times for other European sportswear brands such as adidas and Nike.

BofA forecasts a mid- to high-single-digit constant-currency revenue decline of about 7% for the quarter, translating to a 12% reported drop when including a 5 percentage point foreign-exchange headwind. The weakness stems from inventory buybacks from retailers announced in July.

For 2025, the brokerage projects a 10% full-year constant-currency sales decline, in line with management’s low-teens guidance. 

A sharper 18% drop is forecast for the second half, with sales contracting around 30% in the fourth quarter.

The Herzogenaurach-based company’s gross margin is expected to fall by 3 percentage points to 45%, the lowest third-quarter level in more than a decade, as the company faces U.S. tariffs, inventory depreciation, and cost-cutting expenses.

BofA expects an operating loss of €10 million in the third quarter, compared with Visible Alpha’s consensus of a €9 million profit. 

The analysts forecast a net loss of €89 million, narrower than the €248 million loss in the second quarter. For the full year, they estimate a €650 million net loss, below the consensus of €476 million.

The brokerage also pointed to stable liquidity, with €663.8 million in unused credit lines as of June 30 and gross debt exceeding €1.3 billion, about half financed through a revolving credit facility maturing in 2030. 

Net debt is expected to rise from €1.05 billion in the second quarter to €1.2 billion by year-end.

Valuation models presented by the brokerage suggest an average equity value of about €5 billion, based on approaches including revenue multiples (€5.3 billion), licensing income (€4.4 billion), advertising capitalization (€6.9 billion), and long-term price-to-earnings analysis (€3.2 billion).

The analysts said Puma’s new chief executive is expected to focus on brand stabilization and retail optimization rather than premium repositioning in the upcoming strategy update.