ADS-DE/ADDYY | Adding To Best Idea Long List. 75% Upside In 2 yrs. After 20 years, ADS finally has a strategy that’s accretive to the global duopoly w NKE. We think this one gets you paid.
Putting it all together…we come out with financials that are above the company’s stated goals for 2021 as well as its ‘ambitions’ for 2025. But we’re ok with that. That puts us well above consensus, as outlined in the table below. But more important than coming in ahead of the Street, in our opinion, is the consistency as to how the company delivers. Erratic results won’t close the valuation gap with Nike – consistency will, especially as both companies put up margin levels that are hitting new peak while distribution is 50%+ DTC as the brands take control of their own distribution and shift increasingly away from the old-school wholesale footwear model. A key part of our valuation framework is that ADDYY sits at a 25% discount to NKE today on EBITDA, and we assume that discount narrows by 500bp per year as Adidas finds its grove in the global duopoly and over-delivers on its' promises. If this was the old Adidas management team, there's no way I'd give it credit for executing -- but Rorsted's team definitely gets the nod from an execution standpoint. On top of our above-consensus EBITDA and EPS estimates, that suggests 40% upside in a year, 75% in 2-years and a three-bagger by year-5 of our model.
WOOF | PetCo Health and Wellness – Moving Higher on Long Bias List. Despite a strong quarter two weeks ago, consensus estimates remain too low for this company. We think that the roll out of the vet clinics in the stores (and the $27bn TAM for vet services) is underappreciated in the consensus expectations for both top-line growth, and EPS. Particularly over the longer term, the Street has the company’s EPS below $1.00 per share – over 5-years, while we have a TAIL estimate of $1.80 per share. The stock remains heavily shorted – with 27% of the float held short, and we think the upcoming quarter will beat at least 50%.
