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Morgan Stanley analysts have shared their latest outlook on the apparel market, calling On Holding (NYSE:ONON) a strong stock to own while advising investors to stay cautious with Under Armour (NYSE:UAA). The bank’s research found that some clothing and footwear brands still have a lot of untapped growth potential, while others may be facing unrealistic expectations from the market.
To reach this conclusion, Morgan Stanley used a detailed scorecard system with ten different factors to see which companies could grow into higher revenue levels over time.
On Holding came out as the clear favorite. Analysts at the bank gave the Swiss athletic shoe brand a confident Overweight rating, showing strong faith in its long-term growth. They believe On Holding could eventually reach between $7 billion and $10 billion in yearly revenue, which is much higher than what investors currently expect. Because of this potential, the firm raised its most optimistic price target for the stock to $122 per share.
Even though On Holding’s latest quarterly results missed analyst forecasts, with lower-than-expected earnings and revenue, big names like Bernstein still see promise in the company and kept their Outperform rating. TD Cowen, however, lowered its price target slightly after the earnings report.
Meanwhile, Morgan Stanley has taken a very different view on Under Armour. The analysts gave it an Underweight rating, meaning they believe the company could underperform in the coming quarters. They think the brand may not hit the roughly $5 billion in revenue that many expect, citing slowing growth and market competition.
Other research firms have mixed opinions too. Rothschild Redburn recently downgraded Under Armour to Neutral, while UBS and Stifel still see buying potential in the stock.
Morgan Stanley also looked at other popular clothing names. Abercrombie & Fitch showed promising growth signs similar to On Holding, while American Eagle Outfitters and Gap were seen as struggling to keep up with sales expectations.
Overall, the report suggests that investors should focus on companies with strong momentum and innovation, like On Holding, and be more careful with older brands still trying to regain their edge in a competitive market.