HSBC Upgrades Birkenstock Holding Ltd

Investing.com — HSBC has upgraded Birkenstock Holding Ltd (NYSE:BIRK) from "hold" to "buy," citing long-term growth potential and easing margin pressures as the footwear brand increases investments. The brokerage raised the target price on the stock to $60, indicating a 17% upside.

Despite facing pressure due to concerns over a slowdown in direct-to-consumer sales, HSBC remains optimistic, noting robust growth in wholesale channels and expansion opportunities in Asia.

Growth in Asia

The brokerage anticipates significant growth in Asia, where the climate aligns well with the brand, and they expect margin improvements as scale builds.

Diversification and Sales

Birkenstock's diversification into closed-toe shoes, currently accounting for over 30% of sales compared to just 11% five years ago, is helping mitigate seasonality and increasing average selling prices. HSBC emphasizes the brand’s minimal exposure to China, making it appealing for investors seeking diversified growth.

Valuation Concerns

The bank acknowledges concerns about valuation and liquidity but believes doubts regarding Birkenstock’s growth trajectory are exaggerated. Analysts project DTC sales to outpace wholesale growth in FY25 and assert that the brand has not peaked in any market.

HSBC’s updated forecasts are in line with management’s guidance, predicting Q4 FY24 sales to grow 18% year-on-year. Despite short-term challenges, analysts view Birkenstock as well-positioned for sustained growth, bolstered by product innovation and regional expansion.