On Friday, Piper Sandler took over coverage of On Holding AG (NYSE:ONON), assigning an Overweight rating and setting a price target of $52.00. The firm highlighted the company's impressive performance in the second quarter of 2024, which saw a 29% growth in constant currency sales, matching the growth level of the first quarter despite certain challenges.
The company overcame obstacles such as distribution center automation and product availability issues, which Piper Sandler estimated to have impacted overall sales by 2 percentage points, direct-to-consumer (DTC) sales by 4-5 points, and gross margins by 30-40 basis points. On Holding AG continued to experience strong underlying demand, with no signs of consumer fatigue in the U.S. market, acceleration in DTC sales without the aid of discounting, a rebound in established markets like Austria and Germany following strategic distribution changes, and sustained momentum in China where the brand is still gaining ground.
Piper Sandler expressed confidence in the company's outlook, considering the second half of 2024 and the 2025 estimates as both achievable and likely to be exceeded. The firm pointed out that On Holding AG's stock is trading at 24 times the firm's 2025 enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) projections.
Although this valuation is not considered inexpensive, it is below the 25-26 times average seen in 2022 and 2023. Piper Sandler justified a premium multiple for the stock due to the rarity of finding companies with over 25% top-line growth and even higher profitability growth, with projected EBITDA increasing by over 30% for 2024 and 2025. They also provided a bull versus bear stock price range of $60 to $30.
In other recent news, On Holding AG has been the subject of several positive analyst notes following robust financial results. KeyBanc maintained an Overweight rating on On Holding, citing strong demand, increased brand recognition, and sustained sell-through momentum.
The firm also highlighted On Holding's strategic focus on brand marketing initiatives, collaborations, and a multi-channel retail approach as key drivers of success. TD Cowen, Truist Securities, Baird, and Goldman Sachs (NYSE:GS) also increased their price targets to $50, $51, $50, and $50 respectively, maintaining positive outlooks on the company's future performance.
Recent developments include a 27.8% increase in net sales to CHF 567.7 million and a significant rise in net income to CHF 30.8 million. This financial performance was bolstered by the introduction of new technology, including LightSpray, and the upcoming launch of new products like the Cloudboom Strike and Cloudsurfer Next.
On Holding's management reaffirmed their commitment to accelerating EBIT growth, indicating a strong second half for the company. This projection is supported by a robust product pipeline, which is expected to drive both the direct-to-consumer strategy and overall business expansion. The company expects currency-adjusted sales growth of at least 30% and net sales of at least CHF 2.26 billion, with a gross margin around 60% for the full year 2024.
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