The sports and lifestyle brand stocks to own in 2024, according to Stifel

Discussing the outlook for the Sports and Lifestyle Brand space, Stifel noted that still sound U.S. consumer balance sheets and wage growth that can outpace inflation are supportive of growth and margin expansion opportunities for companies with brand-specific drivers. Fundamentally, lingering inventory remains a challenge for others. The firm’s selection bias favors premium and innovative brands with proven consumer connection and high-return growth vectors. The firm’s top picks in the space are On Holding (LULU).

SECTOR PREVIEW: In a research note discussing structural, fundamental, and tactical considerations for Sports and Lifestyle Brand investment in 2024, Stifel told investors that structurally, still sound U.S. consumer balance sheets and wage growth that can outpace inflation are supportive of growth and margin expansion opportunities for companies with brand-specific drivers. Fundamentally, lingering inventory remains a challenge for others. The firm’s selection bias favors premium and innovative brands with proven consumer connection and high-return growth vectors, with its top picks being On Holding and Lululemon.

Stifel also sees favorable risk reward for brands with relative momentum, strong cash flow, and balance sheet optionality, like Crocs (CROX) and Kontoor Brands (KTB). Given macro uncertainty, it is averse to businesses with poor visibility and/or balance sheet risk, such as Hanesbrands (HBI) and Wolverine World Wide (WWW). The firm also notes that each year, it looks for stocks with potential for a sentiment shift and commensurate re-rating. Across 2024, favorable sentiment shift candidates include Buy-rated VF Corp. (VFC) and Clarus Corp. (CLAR), and potentially, Hold-rated Warby Parker (WRBY).

INNOVATION LEADERS: Looking to 2024, Stifel favors brands with proven consumer engagement with new styles to be leveraged for growth next year and a pipeline of further innovation. It highlights Birkenstock (BIRK), Crocks, Deckers Outdoor (DECK), Lululemon, On Holding and Skechers (SKX) as innovation leaders with strong momentum. Notably, Nike’s (NKE) revenue strength has become concentrated in retro court styles and Stifel anticipates the market will look for newness from the company or look elsewhere. Reportedly, there is a slate of newness to be launched in Spring ahead of the Paris Olympics.

LAGGARDS WITH LEGACY BURDEN: In contrast, brands that have struggled with inventory management and are burdened with legacy product may struggle to engage consumers and elevate the brand for future growth, Stifel argues. The firm sees risk from this dynamic for Columbia Sportswear (COLM), Hanesbrands, VF Corp., and Wolverine World Wide.

RATING, TARGET CHANGES: Stifel downgraded Deckers Outdoor to Hold from Buy with a price target of $709, up from $600. The firm says improved Ugg go-to-market strategies, reduced dependence on Ugg Classics for earnings power, and the emergence of Hoka as a meaningful growth driver give Deckers “a credible case for multiple years of strong revenue growth.” But while the company’s momentum is strong and near-term estimates have room for upward revisions, the “generous implied multiples” at current share levels give credit for this, Stifel argues. As such, the firm sees limited upside from current share levels.

Stifel also raised its price targets on Birkenstock to $52 from $47, Crocs to $132 from $121, Kontoor Brands to $70 from $60, Lululemon to $596 from $529, On Holding to $40 from $36, Revolve Group (RVLV) to $18 from $16, Skechers to $72 from $62, and Yeti (YETI) to $43 from $40. Meanwhile, the firm lowered Hanesbrands’ target to $4.50 from $5. Stifel has Buy ratings on all names, with the exception of Hold-rated Hanesbrands and Yeti.