JD Sports Fashion PLC has been upgraded to 'overweight' from 'neutral' by JP Morgan, following the bank's review of the European sporting goods sector.
Its research note analysed the sector's key debates and predicted a year of two halves, with first-half characterised by gross margin pressure and a stronger second six months supported by an accelerating recovery in China.
The bank has placed a positive catalyst watch on JD Sports ahead of the company's full-year results on March 8.
It believes the group offers the best combination of growth, margins, returns, and valuation in the sector, with higher topline growth and margins that could drive a narrower valuation gap ahead. The bank estimates that M&A could add up to 10% to sales over the next 12-18 months.
In contrast, JP Morgan has downgraded Puma to 'neutral', with a €65 price target, and cited more positive positioning for Puma's rivals and fewer incremental buyers for Puma as conviction in the adidas turnaround increases.
The bank has upgraded adidas to overweight and increased its price target to €162. JP Morgan's analysis suggests that adidas' most recent profit warning has rebased expectations, leaving scope for upside in FY24. The bank believes that adidas can return to a double-digit EBIT margin long term, has weak market sentiment, and several positive catalysts ahead.
JP Morgan's research note highlighted major sector catalysts, including Pou Sheng's February sales report on March 9-12, which will be key in tracking the recovery in China, and Nike's Q3 2023 results on 21 March. Comments on current trading, gross margin, and inventory are likely to be of most interest in read-across.
JD Sports shares traded sideways on Tuesday at 179.95p. Of the 14 banks and brokerages logged as following the stock, 13 are positive. The consensus price target is 226p.