There's been a major selloff in adidas AG (ETR:ADS) shares in the week since it released its annual report, with the stock down 29% to €172. It was a credible result overall, with revenues of €24b and statutory earnings per share of €10.00 both in line with analyst estimates, showing that adidas is executing in line with expectations. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from adidas's 34 analysts is for revenues of €24.2b in 2020, which would reflect a credible 2.4% increase on its sales over the past 12 months. Statutory earnings per share are forecast to reduce 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.
It'll come as no surprise then, to learn that analysts have cut their price target 8.9% to €265. 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. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await adidas shareholders.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the adidas's past performance and to peers in the same market. It's pretty clear that analysts expect adidas's revenue growth will slow down substantially, with revenues next year expected to grow 2.4%, compared to a historical growth rate of 9.1% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 6.4% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than adidas.
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. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of adidas's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on adidas. Long-term earnings power is much more important than next year's profits. We have forecasts for adidas going out to 2024, and you can see them free on our platform here.
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