Adidas: Small Fair Value Estimate Increase After Preliminary Results, but Shares Overvalued

Overcoming uneven demand for sportswear in major markets, narrow-moat Adidas released preliminary first-quarter results that exceeded our expectations. The firm achieved 4% sales growth, a 51.2% gross margin, and EUR 336 million in operating profit in the period, above our respective estimates of 2%, 46%, and EUR 110 million. After revising our model to incorporate these results, our first-quarter earnings per share estimate increases to EUR 1.23 from EUR 0.27 and our fair value estimate rises to EUR 166/$89 from EUR 163/$88. We expect to revisit our forecast for the year after the full quarterly results are reported, expected at the end of April. Adidas did caution that it still expects a significant negative impact from currency movement in 2024.