RBC Capital Markets has downgraded Adidas AG's rating from outperform to sector perform, adjusting its 12-month price target from €190 to €160. The brokerage highlighted concerns over slowing organic growth and lower profitability expectations for 2026, despite the anticipated revenue boost from the upcoming World Cup. The firm expects Adidas' organic revenue growth to decelerate and foresees limited margin expansion potential, reflecting the brand's maturation and the large revenue base.
Key Points
- RBC Capital Markets downgraded Adidas from "outperform" to "sector perform" and lowered the 12-month price target to €160 from €190.
- The brokerage projects Adidas' organic revenue growth in 2026 to be 7%, including a 4% boost from the World Cup, but organic growth excluding the event is expected to slow to 3%.
- Expected EBIT margin is revised down to 9.3% for 2026, below consensus expectations of around 10%, due to profitability pressures and operational expense assumptions.
RBC Capital Markets revised its stance on Adidas AG, moving the stock from an "outperform" rating to a "sector perform" designation in a note issued on Friday. The investment firm also reduced its 12-month price target from €190 to €160, contributing to a stock price decline exceeding 2%. This adjustment stems from perceived limited upside catalysts and what RBC characterizes as consensus expectations for 2026 being overly optimistic.
In its evaluation, RBC projects Adidas' 2026 organic revenue growth at 7%, which is approximately four percentage points lower than market consensus. The firm anticipates adjusted EBIT to reach €2.40 billion, translating into a 9.3% margin—a figure roughly 13 percentage points beneath prevailing consensus estimates.
The brokerage noted that consensus forecasts generally assume an EBIT margin near 10% for 2026. By contrast, RBC's calculations suggest diminished profitability levels. The downgrade is principally attributed to a deceleration in Adidas' core revenue trend outside the influence of the 2026 World Cup. Specifically, RBC forecasts the brand's organic revenue growth for 2026 to slow to 3%, with an approximate 4 percentage point growth contribution from the World Cup event, cumulatively yielding 7% total organic growth.
RBC attributes this slowing performance to Adidas' already substantial revenue base and the maturation of its brand cycle. The brokerage further highlighted that expectations for margin expansion are largely embedded within current consensus estimates. Its model assumes a gross margin near 52% and anticipates operating expenses will continue to represent between 42% and 43% of sales, implying an EBIT margin range of 8% to 11% throughout the business cycle.
This revisited outlook led RBC to trim its revenue forecast for 2026 by 4% and lower its EBIT estimate by 8%. Correspondingly, projected earnings per share have been reduced by 10%, partly reflecting an assumption of a decreased share buyback program. Despite these downward revisions, RBC observed that Adidas' valuation remains beneath historical averages but expressed limited confidence in the visibility of catalysts that could stimulate a re-rating in the near term.
Risks
- Deceleration in Adidas' underlying organic revenue growth may signal challenges ahead, especially after the temporary World Cup uplift dissipates.
- The maturation of Adidas’ brand cycle could limit future growth potential and exert pressure on margins, impacting investor returns.
- Limited near-term catalysts reduce visibility for a positive stock re-rating, potentially influencing investor sentiment negatively.