On Thursday, UBS revised its rating. Zalando SE (ETR:) (ZAL:GR) (OTC: ZLNDY) Changed the stock price from Neutral to Buy and set a new target price of EUR40.00, a significant increase from the previous price of EUR28.00.
The upgrade follows Zalando’s reported higher revenue performance and gross merchandise volume (GMV) upgrade, hinting at a potential upgrade cycle for the online fashion retailer.
With a market capitalization of $7.71 billion and a solid gross margin of 40%, the stock is currently trading below its fair value, according to InvestingPro analysis, supporting UBS’s bullish stance.
Zalando’s previously announced fourth quarter results show a strong trajectory for profitability, with adjusted EBIT expected to exceed the high end of the company’s guidance for fiscal 2024. This performance led UBS to predict a business-to-consumer (B2C)-led turnaround for Zalando.
The company’s strong financial position is evident in its healthy balance sheet with $606 million in EBITDA, and InvestingPro data shows it has more cash than debt. Subscribers have access to a detailed financial health score and 8 additional pro tips for even more in-depth analysis.
UBS expects EBIT improvement to continue through fiscal 2025, supported by three key factors. For one, the GMV compound annual growth rate (CAGR) is 6.6% through 2028, reflecting modest market share gains. The GMV/Revenue CAGR for FY2025 and FY2026 is 8.1% and is likely to increase further due to Zalando’s market position and marketing efforts. Finally, EBIT opportunities arise from improved retail gross margins and better cost utilization from Zalando Marketing Services (ZMS) and business-to-business (B2B) operations.
The analyst also notes the potential for mergers and acquisitions (M&A) involving the YOU platform, which, although not factored into the base case, is likely to increase given the economies of scale of the B2C and B2B product suites. There is a possibility that
Zalando’s share price has performed well over the past year, with InvestingPro data showing an impressive return of 69.37%, but UBS’s proprietary HOLT analysis shows the company’s improving cash flow return on investment (CFROI) profile. This suggests that there is room for further growth.
Trading at a P/E ratio of 38.05, the stock shows promising growth potential, supported by analysts’ expectations for net income growth this year. UBS’s rating upgrade reflects confidence in Zalando’s continued growth and improved profitability.
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