Morgan Stanley has resumed its coverage of the sportswear sector with a notably cautious stance, warning that the industry faces a "triple headwind" made up of structural fragmentation, elevated promotional activity, and weak consumer sponsorship, the bank's analysts said.
Led by Alex Straton, the team designated On Holding as the only stock in the group to receive an Overweight rating. By contrast, Nike and Under Armour were assigned Underweight ratings and Adidas received an Equal-weight designation.
The firm argued that On Holding's roughly 40% year-to-date decline "overstates medium-term fundamental deterioration," saying consensus estimates underappreciate both the persistence of growth and the potential for margin improvement. Morgan Stanley set a $39 price target for On, implying about 45% upside from current levels, while noting that any re-rating could be gradual as new management works to build credibility with investors.
On's growth profile in the Americas and EMEA, the analysts wrote, appears more durable than the Street assumes. They highlighted continued direct-to-consumer strength and healthy trends across Europe, including roughly 21% constant-currency growth in the second quarter. The analysts singled out profitability as "the 'Dark Horse,' or most underappreciated part of the equity story," pointing to potential margin expansion under the company's new leadership.
For Nike, Morgan Stanley established a $31 price target, which the team said implies about 20% downside. The analysts wrote that "the market is underwriting recovery faster than the evidence supports," arguing that consensus forecasts embed too much growth too soon. They pointed in particular to China, where Nike's distribution exit with two online retail partners could create downside risk not yet reflected in current estimates.
Under Armour was assigned a $4 price target, implying roughly 20% downside, with Morgan Stanley saying that "turnaround traction remains limited" across its survey work, market-share analysis, and demand checks. The analysts added that the Street's assumptions of a return to growth appear "premature."
Adidas was rated Equal-weight with a $31 price target, about 10% above prevailing market levels. Morgan Stanley said the brand's stronger growth and profitability are largely baked into consensus, writing that these attributes are "largely reflected in already-full consensus expectations and a premium valuation," which leaves limited room for positive estimate revisions or multiple expansion.
Looking across the group, the analysts pointed to a broader reallocation of market share toward "niche/premium, Chinese domestic, & broader fashion brands," a trend they said compounds the strain from higher promotional intensity and weakness at category leader Nike. That market-share shift, together with soft consumer sentiment and a continued dominance of AI and technology trades, creates near-term earnings pressure and what the team described as an "unfavorable equity-market backdrop" for the sector overall.
Summary and context
Morgan Stanley's resumption of coverage emphasizes selective conviction in On Holding while maintaining a defensive posture across established global players. The research highlights a combination of company-specific risks and structural industry changes that weigh on consensus expectations and valuation prospects in the near term.