Amer Sports(US:AS) Seeking Alpha·2024-09-02 16:34Core Viewpoint - Amer Sports is recommended as a buy due to strong demand momentum observed in 2Q24, which is expected to persist and help meet consensus EPS estimates for FY24 and FY25, potentially leading to a positive multiple re-rating as the market compares it against peers with lower EPS growth but higher multiples [1]. Business Overview - Amer Sports has a diverse portfolio of sports and outdoor brands, including Arc'teryx, Salomon, Wilson, Atomic, and Peak Performance, offering products such as apparel, footwear, and equipment [2]. - The company operates through two main sales channels: wholesale (64% of total sales) and direct-to-consumer (DTC) (36%) [2]. - Revenue is categorized into three segments: technical apparel (TA), outdoor performance (OP), and ball & racquet (B&R) [2][3]. - Geographically, the company generates 71% of its FY23 revenue from the Americas, 17% from EMEA, 6% from Greater China, and 8% from APAC excluding China [3]. 2Q24 Results Update - In 2Q24, Amer Sports reported adjusted EBITDA of $81 million, surpassing the consensus estimate of $49 million, driven by a 16% revenue growth compared to the consensus estimate of ~11% [4]. - The TA segment experienced significant growth of 34.3% (38% organically), while the OP segment grew by 11.1% (13% organically) [4]. - Gross margin expanded by 220 basis points year-over-year to 55.8%, exceeding the consensus expectation of 54.5%, resulting in an adjusted EBIT margin of 2.9% [4]. FY24 Guidance - Following strong 2Q24 results, management raised the FY24 EPS target to a range of $0.40 to $0.44, up from the previous guidance of $0.30 to $0.40 [5]. - Revenue growth is projected at 15% to 17%, with gross margin guidance at 54.5% and adjusted EBIT margins of 10.5% to 11% [5]. - The strong demand momentum supports the achievability of this guidance [5]. Demand and Growth Insights - The two-year stack growth for both wholesale and DTC channels has accelerated for two consecutive quarters, indicating sustained demand momentum [5]. - New customer growth is in double digits year-over-year, reflecting effective brand awareness and conversion strategies [5]. - Wholesale revenue growth of 24% suggests strong demand from wholesalers and distributors, indicating confidence in future sales [5]. Product Pipeline and Innovations - The company has a robust product pipeline, particularly at Wilson, with anticipated strong demand for new collaborations and product launches [5]. - Notable upcoming products include collaborations with Roger Federer and Caitlin Clark, as well as the launch of the Intrigue shoe designed for female tennis players [5]. Financial Health - Amer Sports exited 2Q24 with $256 million in cash and approximately $2 billion in debt, resulting in a net debt of around $1.75 billion [6]. - The net debt to LTM EBITDA ratio is approximately 2.8x, which is manageable given the positive EBITDA growth outlook [6]. - Inventory levels have increased, but this is seen as a strategic move to meet anticipated demand, with revenue growth outpacing inventory growth by 14% [6]. Valuation Perspective - Amer Sports currently trades at approximately 23x forward PE, in line with peers, but there is potential for a higher valuation if EPS grows as expected [7]. - Comparatively, peers like Nike and Under Armour are projected to see declines in EPS, yet trade at higher forward PE multiples [7]. - A positive revision in multiples could imply a stock price of around $17, representing a 23% upside [7].