UBS has issued a research report reiterating its "Buy" rating on On Holding AG (ONON.US) with a price target of $85. The bank believes that On's continued focus on innovation, performance, athletes, sports, its direct-to-consumer model, and maintaining a premium, full-price brand image will drive industry-leading sales and profit growth. The firm forecasts that On will achieve a compound annual growth rate of 20% for sales, 24% for adjusted EBITDA, and 20% for earnings per share over the next five years. It expects this strong growth momentum to persist, positioning On to become one of the fastest-growing sportswear brands globally. UBS also believes this performance will positively surprise the market, pushing its price-to-earnings ratio higher.
The latest survey data has bolstered UBS's confidence, as the bank views the findings from the UBS Evidence Lab's 11th Annual Global Sportswear Survey as indicative of On's substantial growth potential. A primary reason is that the company's brand awareness still has significant room for expansion, and current trends suggest its momentum is favorable. The survey reveals that On's global brand awareness stands at just 15%, a level substantially lower than brands like Nike (91%), Under Armour (53%), and Lululemon (36%). Furthermore, On's brand awareness increased from 13% last year to 15% this year. UBS considers this improvement in brand recognition a key reason why On is poised to gain more market share by 2026.
On's global purchase intent and Net Promoter Score (NPS) demonstrate robust performance. The company is not only enhancing its brand awareness but is also successfully converting many consumers who have heard of the brand into actual customers. On's global purchase intent for footwear grew 34% year-over-year, while its global purchase intent for apparel surged by an impressive 122%. On's global NPS increased from 25% last year to 39% this year, currently ranking sixth globally. These metrics indicate that On is capable of winning consumer favor in a repeatable manner and building lasting connections with them.
UBS outlines four pathways through which On is becoming a top global sportswear brand. The bank's discussions with investors reveal skepticism about On's ability to achieve its vision, but the survey points to success in four areas: 1. Global consumers increasingly recognize On's high-quality products, with the proportion of respondents agreeing that On offers high quality jumping from 31% last year to 47% this year. 2. Recognition of On as a well-known brand is growing. Approximately 40% of surveyed global consumers consider On a well-known brand, up from 31% a year ago. 3. Perception of On as a sportswear brand is strengthening. The proportion of global consumers who view On as suitable for sports rose from 42% last year to 46%. 4. Respondents continue to see On as an innovative brand, with 44% of global consumers identifying it as such. Although this represents a 200 basis point decrease year-over-year, it still ranks third overall.
The brand faces a shortcoming in one area, which UBS views as an opportunity. The survey shows that the proportion of global consumers who find On's products easy to find in-store or online declined from 27% last year to 25%. On's score of 25% is among the lowest of all brands surveyed. The bank believes this presents a highly attractive opportunity for On to expand its direct-to-consumer channel network.
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