JD Sports Fashion PLC (LSE:JD.) has long been out of favour with the analysts at Deutsche Bank, but they’re no longer quite so pessimistic.
After years of holding a bearish view, analyst Alison Lygo and her team have nudged up their target price from 85p to 100p.
Even so, they’re sticking with a 'hold' rating, arguing that while the conditions for a recovery are starting to take shape, the path remains uncertain.
The sportswear chain’s shares have de-rated sharply in the past year, thanks to both weaker earnings and a souring in sentiment.
“An end to downgrade cycle, line of sight to a Nike comeback and rebuild of confidence in management are all prerequisites, in our view, to supporting an ability to re-rate,” Lygo wrote.
“Whilst progress is beginning to be made, this doesn't necessarily translate into earnings upside.”
The note highlights two key areas of concern.
First, there’s JD’s relationship with Nike. Once a core supplier, Nike has been gradually shifting strategy, pulling back from traditional wholesale partners and favouring more exclusive or segmented relationships.
That means JD will need to find new ways to prove its worth to the world’s biggest sports brand.
Second, there’s the US consumer, who has shown signs of price sensitivity, especially in the mid-market where JD operates.
DB's concern is that price elasticity is weighted towards the retailer, meaning JD may have to absorb more of the discounting pressure to maintain volumes.
The stock appeared to receive a boost from this more optimistic assessment of prospects from Deutsche, rising 5% to 92.42p.