Investing.com -- HSBC has upgraded On Holding to "Buy" from "Hold" raising its price target to $58 from $52, citing a strong product lineup and better-than-expected earnings.
The Swiss sportswear company, known for its performance running shoes, recently reported a record-breaking year, with annual sales reaching 2.3 billion Swiss francs ($2.6 billion).
HSBC believes On’s new footwear releases in 2024, including the latest version of its best-selling Cloud shoe, will attract more customers and drive sales growth. Other upcoming launches include Cloudsurfer 2, Cloudzone, Cloudsurfer Max due in July, Cloudboom Max due in August.
HSBC sees On’s 2025 financial targets as conservative, expecting sales and profits to exceed management’s guidance. The company has overcome challenges such as store closures in Europe and warehouse automation issues in the U.S., positioning itself for stronger performance this year. HSBC’s estimates for On’s 2025 earnings are 4% above the company’s own sales forecast and 8% higher for adjusted EBITDA.
After strong 2024 results and a recent stock price dip, HSBC sees an attractive buying opportunity in the stock.
On is also focusing on apparel, launching a training collection in January featuring musician FKA Twigs. Zendaya, brand ambassador, is also set to release her first co-designed footwear and apparel collection in the third quarter. On is also rolling out products using its LightSpray technology, a new innovation that will be fully scaled in 2026.
A key strength of On, according to HSBC, is its founder-led leadership team, which allows for long-term decision-making rather than short-term profit-focused strategies. HSBC compares this structure to luxury brands, where founders play a central role in business growth.
On’s shares are currently trading at 37.5 times forward earnings, lower than its historical average since its IPO in 2021. HSBC’s new $58 price target suggests a potential 31% upside.
However, HSBC also flagged risks, including potential U.S. tariffs on Vietnam (where On manufactures its products), growing competition from Nike (NYSE:NKE), currency fluctuations, and the possibility of counterfeit products affecting sales.
Despite these risks, HSBC remains confident in On’s long-term potential, citing its innovative products, strong brand momentum, and expanding customer base.
