HERZOGENAURACH, Germany — Deal or no-deal is the mantra of the week with trade talks, especially after US Secretary Steven Mnuchin raised hopes of an agreement. While the market worries about a full-blown trade war, it hasn’t harmed the stock of German sportswear giant Adidas this year. Nike’s earnings tonight may hint at what’s next for the DAX’s top performer.
Adidas shares are up 49 percent this year, beating peers worldwide and all Euro Stoxx 50 members with the exception of Airbus. The outperformance against arch-rival Nike, up a mere 13 percent, is even more striking.
The stellar performance hasn’t stopped Berenberg and Goldman Sachs from raising their view on Adidas this week. Both brokers have set their price target much higher than most analysts, seeing about 15 percent upside from the current level as margins improve and the stock closes the valuation gap against Nike. The consensus isn’t so optimistic.
The thing is, Adidas shares don’t look expensive, even after their stellar gains. Their estimated price-to-earnings is currently about 10 percent lower than Nike, and other metrics like EV/Ebitda are even showing a higher discount. The company has made an impressive turnaround, improving distribution, margins, and gaining market share steadily for the past 10 years, a trend likely to continue given high barriers to entry, Berenberg says.
Nike and Adidas have approximately 15 percent and 11 percent market share of the worldwide sportswear market respectively. The sector has recorded a 7 percent annual growth over the last five years, compared with only 4 percent for the broader apparel and footwear category, driven by a consumer trend toward fitness and a healthy lifestyle, according to Berenberg. This is reflected in share performances: none of the largest apparel companies have managed to keep pace with Adidas this year.
Trade jitters haven’t produced any visible negative effect so far. Still, the possible new round of US tariffs that could be imposed on China, would likely hit apparel and footwear. Adidas though has lower US exposure than Nike, putting it in a better situation in the event of a trade war, SocGen analysts wrote earlier this month.
That said, both companies produce a lot more items in Vietnam than in China now, so the targeting of Vietnam by Trump wouldn’t be good news for either of them. Comments from Nike on tariffs will be under scrutiny this evening.
In the meantime, Euro Stoxx futures are trading up 0.3 percent ahead of the open.
By Michael Msika, Lisa Pham, William Canny and Gaurav Panchal; editors: Blaise Robinson and Jon Menon