On Monday, UBS began coverage on Amer Sports Inc. (NYSE:AS) with a Buy rating, setting a price target of $23.00. The firm's decision is based on two key growth drivers: the potential of the Arc'teryx brand and Amer Sports' underappreciated expansion opportunities in China.
Despite a less impressive fourth quarter, where sales saw a 9% increase compared to the 35% growth in the third quarter, UBS sees this as an undervaluation by the market, reflected in the stock trading at 21 times the firm's fiscal year 2025 earnings per share (EPS) estimate.
The analyst at UBS believes that the fourth quarter sales growth does not reflect the true potential of Amer Sports' revenue capabilities. They anticipate that the company's earnings will outperform market expectations, which will lead to an expansion in price-to-earnings (P/E) ratio.
The forecast includes a 14% revenue increase over the next twelve months (NTM) and a 27% compound annual growth rate (CAGR) in EPS over the next four years.
The $23.00 price target is derived from a projected P/E ratio of 26 times the estimated fiscal year 2026 EPS of $0.90. UBS suggests that as Amer Sports' earnings potential becomes more evident, the P/E ratio will adjust upward to align with the forecasted growth, providing a rationale for the set price target.
UBS's optimistic outlook for Amer Sports hinges on the company's ability to capitalize on the Arc'teryx brand and to harness the growth potential within the Chinese market. The firm expects these factors to contribute significantly to Amer Sports' top-line growth and to lead to a reevaluation of the stock's worth by the market.
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