Lululemon, Puma, Adidas among HSBC’s winners; Nike gets lukewarm reception (NYSE:NKE)

HSBC’s feeling good on sporting goods even with “tough conditions” in the U.S. market.

Sales growth, gross margins and Ebit margins are among the metrics for sporting goods retailers giving HSBC the warm and fuzzies.

Those with the most upside potential include Puma (OTCPK:PUMSY), Adidas (OTCQX:ADDYY) and Lululemon Athletica (NASDAQ:LULU), analysts led by Erwan Rambourg wrote in a note.

Nike’s (Hold) risk-reward is still not very compelling, the firm said, cutting its price target on thes top to $113 from $120.

PUMSY fell 1.1% on Monday, ADDYY was down 2.1%, NKE dropped 0.9% and LULU was lower by 1.5%.

The top line for the sector should rebound as China recovers and even with a weaker U.S. consumer, while gross margins should get support from lower input and freight costs, HSBC said.

Nike

HSBC maintained a Hold rating on NKE, and lowered its price target, mainly on the weight of the U.S. market.

“Nike (NYSE:NKE) remains an undisputed leader but its particularly large exposure to the U.S. market continues to make it more vulnerable in the short term we feel and we are trimming our estimates and target price,” HSBC said.

While China is improving, muted growth in the U.S. and EMEA could continue through March. The firm also cited recent warnings from Dick’s Sporting Goods (DKS) and Foot Locker (FL).

“After years of beating estimates and raising guidance, last quarter was a slight miss and the initial guidance for both Q1 and the full year have come out a bit light in our view,” HSBC said. “Again, we feel that lapping Q2/Q3 will make it difficult for the group to beat and raise.”

Puma

HSBC maintained its Buy rating on Puma (OTCPK:PUMSY) and raised its price target to €80 from €67.

PUMSY has delivered a solid organic sales growth performance even in tough times, the firm said.

“Puma (Buy) remains a superior growth compounder with likely upgrades coming and a very compelling valuation,” HSBC wrote in a note.

The firm sees PUMSY’s third-quarter growing at the same magnitude as its previous quarter, up 11%, and said it should have a good fourth quarter thanks to initiatives such as the launch of the Rihanna’s Fenty x Puma.

“Overall management guidance of a high single digit sales growth rate in 2023 appears conservative in our view, in light of the solid product pipeline in H2, as it would imply sales up only 6% at constant FX in H2.”

Adidas

Nevermind Yeezy. Adidas (OTCQX:ADDYY) is on HSBC’s good list.

The firm maintained a Buy rating on the stock, saying the phoenix is rising next year.

Underlying business is better and Yeezy’s out of the way. “We now expect Adidas to generate some profits in 2023,” HSBC said.

Chief Executive Officer Bjørn Gulden took the helm at the start of the year and he has been empowering people and encouraging staff to take decisions and risks. He has also implemented a lot of changes very quickly, and that’s key to ADDYY’s success story.

Lululemon

HSBC initiated LULU with a Buy rating and a price target of $500.

The firm noted that while analysts tend to love the stock, shares are still barely above late 2020 levels even as the business is significantly bigger and the growth prospects even more exciting than back then.

“We have decided to initiate coverage as the name seems to gather more interest and we believe the equity story sits at the cross-roads of many business models,” HSBC said.

Among the benefits of LULU:

• It goes straight to the consumer, cutting out the middleman and generating luxury-like margins.
• The long-term compounding nature of sports as consumers look to live healthier and at least certainly more comfortable lives both in a professional and a leisure setting.
• A healthy part of sales takes place online.
• It’s evolving from being heavily female-centric.

“As we believe Lululemon will hit its long-term targets a year ahead of its plan (i.e. in FY25, not FY26), we trust there is unlikely to be an accident in the short term as the company could continue to deliver results ahead of sell-side expectations and corporate guidance,” HSBC said.