"A year of two halves" is on teh cards for European sportswear companies Adidas and JD Sports, according to JP Morgan.
Analysts at the bank said the first half would be characterised by “material gross margin pressure", while a stronger second half would be supported by an accelerated recovery in China.
As such, the analysts moved Adidas up to an overweight rating, with a target price of €162, while JD Sports remained overweight with a target price of 210p.
For JD, JP Morgan believes the FTSE 100 company offers the best combination of growth, margins, returns and valuation in the sector.
JP Morgan said it expects higher topline growth and margins for JD Sports, estimating a roughly 10% increase in sales over the next 12 to 18 months.
At Adidas, the broker believes its most recent profit warning “significantly rebased” expectations to the “extent there is now scope for upside in the fiscal year 2024.”
The broker says that this, coupled with the belief it can return to double-digit EBIT margin, weak market sentiment and positive catalysts turn it more upbeat.
However, analysts were less keen on Puma, which was downgraded to 'neutral' with a target price of €65.
While the broker believes Puma “remains a compelling growth and margin story long term,” it sees less share price upside compared to Adidas.
This is a result of more positive positioning from Adidas, less upside risk and the “fact that Adidas and Puma are often seen as a pair, which may leave Puma with fewer incremental buyers as conviction in the Adidas turnaround increases.”