Bernstein Names Top US Apparel Picks; Downgrades Adidas to Neutral

Summary

On Thursday, Bernstein declared Nike, Burlington Stores, and TJX Cos. as its leading picks from the US apparel and specialty retail sector, while Adidas AG ‘s stock was relegated to Neutral from Outperform.

Details on Choice of Apparel Retail Stocks

Bernstein analysts predict a divided 2024 for US consumer discretionary spending. The first half is expected to reveal a squeeze on middle-income and off-price trade-down, followed by the H2 resurgence in sportswear and brands, compelled by easy comparables and substantial rate cuts.

Bernstein’s Top Pick: Nike

Nike, adjudged by Bernstein with a $134 price target, emerges as the firm’s premier choice for the forthcoming six months. Analysts believe December’s guidance cut furnishes a short-term beat opportunity.
In their analysis, “an overreaction by the market to cut FY25 figures” is identified. The analysts are positive about upcoming performance reviews as the growth for Fall 2024 appears more promising than anticipated. According to their model, the multi-year margin story is unbroken, expecting about 20% EPS growth over the subsequent 3 years.

Assessment of Burlington

Burlington, with a revised $218 price target, up from the previous $200 per share, is Bernstein’s highlighted pick for a span of 12 months. They mentioned it as “the off-price underdog” that has lagged behind its high-quality competitors. An impressive 27% EPS CAGR is predicted, despite potential execution risk. The growth is not considered in the current pricing, and they anticipate the multiple to expand with confidence in management building throughout the year.

TJX’s Future Outlook

In the longer context of a 2+ year timeframe, TJX, with an upward revised $107 price target, comes into focus. The company extends beyond conventional off-price into a broader spectrum of categories, higher price points, and wealthier customer sections. This transition is projected to drive an expansion in both comps and margins, with low execution risk factor due to a high-quality management team.

Adidas Stock Downgraded

Finally, Bernstein decided to trim down Adidas’ rating, reducing the price target from €205 to €200. Experts believe that consensus estimates for the first half are set too high. The tandem of weak wholesale order books and global consumer demand suggests that H1 guidance might let down. While the longer-term outlook for Adidas remains positive, they prefer a tactical wait for a short-term dip before becoming more optimistic.

This financial adjustment is expected to influence forex and trading, particularly affecting the assets of the companies mentioned. Optimizing and adjusting portfolios in line with these evaluations could potentially yield notable returns.

PIP Penguin
Logo