The sportswear sector has taken a knock from US tariffs, but UBS thinks Adidas AG (OTCQX:ADDYY) can handle the pressure better than the rest.
The German maker of the iconic Samba trainer might be facing the same global headwinds as its rivals, but UBS believes the brand is in a stronger position to come through the storm.
The bank has kept its 'buy' rating and trimmed its 12-month price target slightly to €282 from €289, still implying over 40% upside from current levels.
The big issue for the sector is tariffs. Since the US introduced higher duties on imported goods, including a steep 145% rate on Chinese products, investors have worried about what this means for costs and consumer demand.
Sportswear stocks have lagged the wider market as a result. But UBS said the focus has now shifted to which companies are best placed to absorb the blow, and it sees Adidas at the top of that list.
The bank pointed to three key reasons. First, Adidas has limited exposure to the US, with the region accounting for just 20% of sales last year.
That means any weakness there could be cushioned by stronger momentum elsewhere, especially in Europe and China, where UBS is seeing double-digit and high-teen growth, respectively.
Second, the bank said Adidas has recently sounded more confident about its ability to raise prices. That pricing power could help offset higher import costs.
Third, UBS said supplier demand remains strong, giving Adidas potential leverage to negotiate better terms - another way to manage margin pressure.
Looking ahead to first-quarter results on April 29, the Swiss bank is forecasting sales of €6.1bn, up 12% at constant exchange rates, with underlying growth closer to 15%.
The strongest gains are expected in emerging markets and Latin America, with China and Europe also performing well.
Gross margin is expected to come in at 51.6%, helped by mix and lifestyle category strength, with operating profit forecast at €550mn, a 9% margin.
UBS said Adidas trades on 24.5 times estimated 2025 earnings, falling to 16.7 times by 2026, with expected compound growth of 10% in sales and 33% in earnings over the next three years.
The tone was more cautious on Puma. The bank retained a 'sell' rating and lowered its price target to €19.
It said the outlook remains unclear, even with tariffs temporarily suspended, and flagged risks around North American inventory levels and a recent drop in market share.
First-quarter sales are expected to fall 2% at constant exchange rates, with EBIT at €70mn and a margin of 3%.