Adidas AG (ADDYY) Gains as UBS Upgrades to Buy on European Strength

Adidas AG (OTC: ADDYY) is gaining Wednesday after UBS upgraded the athletic footwear maker from Neutral to Buy citing European strength. The price target was raised from EUR63 to EUR82.

Analyst Fred Speirs said the adidas brand still strong in Western Europe. "The recent turnaround looks set to continue," Speirs said. "Our Evidence Lab survey of 3,000 sportswear consumers in UK, France & Germany showed adidas has the strongest purchase intent (particularly in apparel), highest brand loyalty, and joint-best brand perceptions. We raise our mid-term Western Europe sales CAGR to 8% (was 6%). Execution & product will be critical and we see increased cause for optimism on both."

Also, despite Nike's (NYSE: NKE) strength, the analyst said it is not too late for adidas to win with young consumers. "Nike has been doing a better job than adidas at building positive perceptions among younger European consumers. But it is not too late for adidas. Our survey suggests adidas is in good health across the generations given the narrow spread in brand perceptions by age group. Purchase intent for under 25s is positive. The new plan sees adidas making a major push to boost consumer engagement and implies a converging marketing strategy with Nike ahead. We think this greater focus by adidas on consumer-oriented product/marketing will help improve perceptions among under 25s."

The firm is also developing a more positive view on the rest of the business. "The market remains too sceptical over the new five year plan which is already driving transformational change," he commented, "We think the more consumer-centric approach should improve the business's ability to exploit future opportunities and reduce the scope for future executional missteps. Downside risks from Golf/Russia/N.America should now be limited following extensive measures (1Q15: combined segments break-even), and the resurgence of the (highly profitable) Chinese sportswear sector is also supportive."

For an analyst ratings summary and ratings history on Adidas AG click here. For more ratings news on Adidas AG click here.

Shares of Adidas AG closed at $38.46 yesterday.

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