Jefferies initiates On with ‘hold’ rating amid slowing growth, valuation concerns

Investing.com -- Jefferies initiated coverage on On Holding AG with a "Hold" rating and a price target of $44, citing concerns over slowing growth, increasing competition, and a lack of significant non-footwear catalysts despite the brand's strong market position.

The Swiss athletic footwear company has seen rapid expansion, with a five-year compound annual growth rate (CAGR) of over 50%, bringing its global footwear market share to 2%.

However, Jefferies analysts expect this growth to decelerate significantly, modeling a rate just below 25% CAGR over the next two years.

On Holding’s footwear sales grew by 29% in fiscal 2024, down from 47% in the prior year and 71% in fiscal 2022, signaling a shift toward more normalized growth.

The company has benefited from Nike’s reduced wholesale penetration in recent years, but with retailers increasing their commitments to Nike (NYSE:NKE), On could face headwinds in securing additional shelf space.

Additionally, Jefferies noted that On’s non-footwear segments—apparel and accessories—remain minimal contributors to overall sales, holding only a 0.1% market share in their respective categories. While these segments are expected to grow, they are unlikely to become major revenue drivers in the near term.

On Holding has a strong balance sheet, with over CHF 900 million in cash and no debt, and became free cash flow positive in fiscal 2023.

However, its shares are already trading at 19 times Jefferies' fiscal 2026 adjusted EBITDA estimate, placing it at the high end of the valuation range for sportswear and footwear peers, which trade between 9x and 23x EBITDA.

Jefferies concluded that while On remains a strong brand in the athletic footwear space, its stock is fairly priced given the expected growth slowdown and competitive pressures.