Morgan Stanley Names On Holding Top Sportswear Pick, Downgrades Nike to Underweight

Morgan Stanley has resumed coverage of the sportswear sector with a broadly cautious outlook, naming On Holding (ONON) as its sole "Overweight"-rated stock. In a new note to clients, the investment bank initiated Nike (NKE) and Under Armour (UAA) with "Underweight" ratings, citing significant industry-wide challenges.

A Cautious Sector Outlook

Analysts led by Alex Straton pointed to a "triple headwind" for the industry, comprised of structural market fragmentation, elevated promotional activity, and weak consumer sponsorship. The report highlights a market share shift toward niche, premium, and domestic Chinese brands, which compounds pressure on established players.

Morgan Stanley concluded this creates an "unfavorable equity-market backdrop" for the sector amid softer consumer sentiment. The firm's new ratings are as follows:

• On Holding (ONON): Overweight, $39 price target
• Adidas (ADSGn): Equal-weight, $31 price target
• Nike (NKE): Underweight, $31 price target
• Under Armour (UAA): Underweight, $4 price target

On Holding's Untapped Potential

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Despite the sector's challenges, Morgan Stanley is bullish on On Holding, arguing that its roughly 40% year-to-date decline "overstates medium-term fundamental deterioration." The bank's $39 price target implies approximately 45% upside, with analysts stating that consensus estimates underestimate the company's growth durability and margin maturation potential.

The analysts called profitability the "most underappreciated part of the equity story" for On Holding. They pointed to continued direct-to-consumer strength and healthy European trends, including roughly 21% constant-currency growth in the second quarter, as evidence of a more durable outlook than the market assumes.

Headwinds for Nike and Under Armour

In contrast, Morgan Stanley warned that for Nike, "the market is underwriting recovery faster than the evidence supports." The firm's $31 price target suggests about 20% downside, with analysts flagging that consensus embeds too much growth too soon, particularly in China.

Under Armour faces a similar outlook, with a $4 price target also implying roughly 20% downside. The bank's research found that "turnaround traction remains limited" and that Wall Street's assumptions of a return to growth are "premature." Adidas received a neutral "Equal-weight" rating, as its strong performance is seen as already reflected in its premium valuation.