On Tuesday, Goldman Sachs (NYSE:GS) updated its outlook on On Holding AG (NYSE: ONON), raising the price target to $57 from the previous $50 while maintaining a Buy rating on the stock. The adjustment follows On Holding's third-quarter 2024 financial performance, which showed an adjusted EBITDA of CHF 120.1 million. This result was propelled by net sales reaching CHF 635.8 million, marking a year-over-year increase of 32.3% and a constant currency growth of 33.2%.
The company's group gross margin improved, recording a 60.6% figure, which is a 70 basis points increase compared to the previous year. This margin expansion contributed to an adjusted EBITDA margin of 18.9%. Additionally, net working capital displayed a year-over-year decrease of 7.2% at the end of the third quarter of 2024.
Sales performance varied by region, with EMEA constant currency sales growing by 15.2%, Americas by 34.5%, and APAC notably by 85.7%. The direct-to-consumer channel saw a 51% increase, while wholesale constant currency sales rose by 24%. On Holding has reiterated its full-year 2024 guidance, which includes constant currency sales growth of at least 32%, net sales guidance of at least CHF 2.29 billion using current spot rates, a gross margin of around 60.5%, and an adjusted EBITDA margin at the upper end of the 16%-16.5% range.
In light of the recent financial results, Goldman Sachs has revised its full-year 2024 and 2025 constant currency sales growth estimates to 31.9% and 25.4%, respectively, up from the previous 30% and 26.1%. The firm also anticipates gross margins of 60.5% for 2024 and 61% for 2025, slightly adjusted from earlier projections of 60.2% and 60.7%. These changes are expected to drive the adjusted EBITDA margins to remain stable at 16.5% for 2024 and increase to 17.5% for 2025, with EBITDA reaching CHF 382 million and CHF 506 million, respectively.
The forecast also includes a projected increase in fourth-quarter 2024 constant currency sales by 36%, a gross margin improvement of 120 basis points, but a 50 basis point decline in EBIT margin due to the timing of marketing campaigns. The analysis suggests a modest rise in selling costs relative to sales, attributed to ongoing store openings. Consequently, the depreciation charge for fiscal years 2024 and 2025 has been updated to 4.8% and 5% of sales, respectively. Despite these adjustments, the projected profit before tax for 2024 remains unchanged at CHF 260 million.
The valuation adjustment by Goldman Sachs, incorporating the above revisions and improved working capital performance to date, has led to an increase in the 12-month DCF-derived price target to $57. This new target implies a roughly 24x multiple on the estimated 2027 enterprise value to EBITDA and approximately 39x enterprise value to NOPAT.
In other recent news, On Holding AG reported robust earnings and revenue results, with third-quarter net sales reaching CHF 636 million, a 33% increase from the previous year. The Swiss sportswear company also raised its full-year 2024 net sales growth expectation from 30% to 32%, projecting net sales of at least CHF 2.29 billion. Truist Securities raised its price target for On Holding AG to $61.00, maintaining a Buy rating, citing the company's strong demand and growth acceleration.
Analysts at Truist Securities attribute On Holding AG's positive momentum to increased brand recognition, due to factors such as exposure during the Olympics and a partnership with celebrity Zendaya. New product launches have been well-received, contributing to the diversification of the company's assortment. Despite foreign exchange headwinds, the company's ability to outperform expectations supports the revised price target.
The company's Direct-to-Consumer (D2C) segment and APAC region, specifically China, saw significant growth. Brand awareness for On Holding AG doubled in the U.S. and tripled in Paris, supported by a strong Olympic presence and celebrity endorsements. These are recent developments, indicating a strong growth trajectory for On Holding AG, driven by strategic marketing, product innovation, and a focus on direct-to-consumer sales.
InvestingPro Insights
On Holding AG's recent financial performance and Goldman Sachs' updated outlook are further supported by key metrics from InvestingPro. The company's revenue growth of 28.49% over the last twelve months aligns with analysts' expectations of continued sales growth this year, as highlighted by one of the InvestingPro Tips. This growth trajectory is consistent with the company's reported 32.3% year-over-year increase in net sales for Q3 2024.
The impressive gross profit margin of 59.97% noted in the InvestingPro Data corroborates the company's reported group gross margin improvement to 60.6%. This strong margin performance underscores On Holding's ability to maintain profitability while expanding its market presence.
Additionally, an InvestingPro Tip indicates that On Holding is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.37. This suggests potential undervaluation considering the company's growth prospects, which could support Goldman Sachs' increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 20 additional tips for On Holding AG, providing a deeper understanding of the company's financial health and market position.
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