Shareholders in adidas AG (ETR:ADS) had a terrible week, as shares crashed 29% to €172 in the week since its latest yearly results. adidas reported in line with analyst predictions, delivering revenues of €24b and statutory earnings per share of €10.00, suggesting the business is executing well and in line with its plan. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether analysts have changed their mind on adidas after the latest results.
Following the latest results, adidas’s 34 analysts are now forecasting revenues of €24.2b in 2020. This would be a reasonable 2.4% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to decrease 5.2% to €9.19 in the same period. In the lead-up to this report, analysts had been modelling revenues of €25.1b and earnings per share (EPS) of €10.74 in 2020. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a real cut to earnings per share forecasts.
The consensus price target fell 8.9% to €265, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values adidas at €349 per share, while the most bearish prices it at €198. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that adidas’s revenue growth is expected to slow, with forecast 2.4% increase next year well below the historical 9.1%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 6.4% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect adidas to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for adidas going out to 2024, and you can see them free on our platform here..
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