HSBC Initiates Coverage of On Holding
HSBC has begun to cover On Holding (NYSE: ONON) with a ‘hold’ rating, setting a target price of $52, which stands as one of the highest in the current market landscape. This move comes amid the ongoing growth observed within the Swiss performance sportswear company's global sales.
Sales Growth and Market Positioning
On Holding is experiencing significant growth, particularly in the sports footwear segment. The company's unique brand distinction and innovative products have played a crucial role in driving its sales upward. Additionally, On Holding has expanded its reach through various product launches and the establishment of new retail locations.
This expansion underscores On Holding's ambitious positioning within the global sporting goods sector. However, it's important to note that its market presence in China still lags behind domestic competitors.
Sector Dynamics and Competitive Landscape
HSBC's coverage aligns with a broader outlook on the sporting goods market, which has seen stabilization following hurdles such as excess inventory and heightened cost pressures post-pandemic. Positive macroeconomic factors, including effective inventory management and favorable foreign exchange rates, have contributed to a recovery. Major sporting events, like the UEFA European Football Championship and the Paris Olympic Games, are also anticipated to propel the industry forward.
HSBC analysts have highlighted that not every entity in the sporting goods field is equally equipped to leverage these market improvements. They express a preference for certain brands like adidas, lululemon (NASDAQ: LULU), and Amer Sports, maintaining a hold on Puma and Nike (NYSE: NKE).
On Holding's Growth Prospects
Despite maintaining a robust sales trajectory, HSBC's analysts caution that much of this optimistic outlook is already factored into On Holding's stock price. They anticipate that challenges could arise amid broader industry conditions, even as the company saw global market share growth in the initial half of 2024.
Looking ahead to 2026, HSBC forecasts significant sales growth for On Holding. Their projections estimate an increase from CHF 2.3 billion in 2024 to CHF 3.8 billion by 2026, indicating strong long-term potential. Nevertheless, the high valuation multiples of the company, with a price-to-earnings (PE) ratio of 44x for 2024 and 39.6x for 2025, suggest that much of this growth is already reflected in the current stock price.
Profit Margins and Future Outlook
HSBC expects that On Holding’s profit margins will see steady improvement in the coming years. They have taken a more cautious but constructive stance on the sporting goods sector in 2024, attributing their outlook to better inventory levels and advantageous foreign exchange movements.
However, the competitive landscape remains fierce, especially in China, where On Holding faces tough competition from international brands such as Adidas (OTC: ADDYY) and Nike, alongside strong domestic players like Anta and Li Ning. In this context, On Holding has successfully carved a niche for itself, particularly focusing on the premium segment of sports footwear.
Frequently Asked Questions
What is the target price set by HSBC for On Holding?
HSBC has set a target price of $52 for On Holding.
What factors contributed to On Holding's growth?
The growth is driven by its unique brand positioning, innovative products, and new store openings.
How does HSBC view the sporting goods sector?
HSBC sees improvements due to better inventory management and positive macroeconomic conditions, but notes not all companies are positioned equally.
What challenges does On Holding face in the market?
On Holding faces stiff competition from major global brands and local Chinese companies, particularly in the Chinese market.
What are the long-term sales projections for On Holding?
HSBC projects On Holding's sales to grow from CHF 2.3 billion in 2024 to CHF 3.8 billion by 2026.
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