Investing.com -- RBC Capital Markets upgraded Zara owner Inditex to Outperform from Sector Perform, with the broker pointing to sustained market-share gains, improving margins and a clear inflection in free cash flow (FCF) after two years of elevated logistics spending.
RBC also raised its price target to 52 euros from 49 euros, saying valuation has become “moderate versus a basket of high quality global peers."
Inditex shares climbed 1.1% in Madrid.
RBC analysts argue that Inditex’s fast-reacting fashion model continues to outpace the broader market, supporting a steady lift in like-for-like (LFL) sales.
They highlight an improving trend since the start of the year, underpinned by strong collections and the company’s ability to adapt quickly to shifting tastes. RBC expects LFL sales to hold at a mid-single-digit pace through the second half (H2) and into next year, helped by easier comparisons and normalising weather and calendar effects.
Moreover, gross margin is seen pushing toward the upper end of guidance, supported by sourcing tailwinds as currency hedges roll off. Inditex sources around a third of its product in U.S. dollars and hedges only half of that exposure.
Analysts expect “around a 100bps fx tailwind to gross margin in H1 and c.50bps in H2,” next year, a boost they say consensus may be underestimating.
Notably, free cash flow is set to improve sharply as capex drops back after the company spent roughly 900 million euros per year on logistics upgrades in fiscal 2025 (FY25) and FY26, analysts said.
With those investments now largely complete, working capital should normalise, and free cash flow to enterprise value (FCF/EV) is expected to rise from 3% to 5% next year.
The analysts also see a long runway for international expansion, particularly in the Americas, where Inditex holds low market share but has been growing at double-digit rates in constant currency.
RBC notes that the U.S. has become the company’s second-largest market by sales, driven by strong online traction and selective store upgrades.
"Inditex should offer amongst the highest earnings visibility in the sector," analysts led by Richard Chamberlain wrote. This estimate is based on RBC’s algorithm of 4–6% LFL growth, 2–2.5% space contribution and stable gross margins.
The new price target reflects slightly higher FY27 earnings estimates and a reduced weighted average cost of capital (WACC) assumption. The bank sees potential upside to 60 euros if LFL momentum remains elevated.