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Investing.com -- UBS upgraded Inditex SA to “buy” from “neutral” and raised its 12-month price target to €52 from €48, citing renewed sales momentum, margin resilience and long-term growth opportunities.
Shares of the Spanish clothing company were up 1.7% at 05:13 ET (09:13 GMT).
The analysts said the Zara owner is “regaining its mojo” after several quarters of weaker trading and now presents “an attractive entry point” for investors.
The call followed a 9% sales rise at the start of the key autumn/winter season, with like-for-like growth of 11%. UBS analysts said this improvement “gives us confidence that ITX’s execution picked up pace again,” noting that the company’s performance has steadily improved this year.
Revenue is projected to climb from €38.6 billion in fiscal 2025 to €49.7 billion by 2029.
Net earnings are forecast to grow from €5.9 billion to €7.7 billion over the same period, with diluted earnings per share rising from €1.88 to €2.47.
UBS expects a 9% compound annual growth rate in earnings per share over the next four years, supporting a total shareholder return above 13%.
Margins are expected to remain among the strongest in the sector. UBS forecast a gross margin of about 57.5% and an EBIT margin of 19.5%, describing the performance as “a good indicator of its strong model” despite challenging markets.
The brokerage added that Inditex’s free cash flow to equity is set to expand at 13% a year on average, aided by lower capital expenditures as extraordinary investments ease.
Dividends are projected to rise in tandem. Net dividend per share is expected to increase from €1.68 in 2025 to €2.47 in 2029, lifting the dividend yield from 3.6% to 5.4%.
UBS flagged Inditex’s long record of outperforming the fashion market, noting its like-for-like sales exceeded peers by about five percentage points over the past 12 years, excluding the COVID-19 period.
“We expect ITX to deliver 4%-6% LFL growth and potentially north of 2% space growth over time reaching c3%,” the analysts said.
The brokerage underscored expansion opportunities in the United States, where Inditex has fewer than 100 stores compared with about 500 for rival H&M.
Despite this limited footprint, sales per store in the U.S. are about six times higher than H&M’s, reflecting strong density in prime locations.
UBS also pointed to online growth potential, noting that Zara accounts for only 1% of U.S. fashion web traffic versus 6% in Spain.
“Regaining confidence to own the best business model in the European Fashion Retail” the analysts said, Inditex has improved sales density by 27% since 2019, aided by a shift to larger, more productive stores.
The company’s sourcing model, in-season buying and integrated online/offline operations have allowed it to maintain high levels of “newness” in assortments while keeping markdowns disciplined.
UBS added that Inditex offers the sector’s “best returns” with a high cash flow return on investment and scope for re-rating back toward its long-term average valuation multiple of 24 times earnings.