Inditex Shares Fall After Downgrade

Investing.com — Inditex (BME:ITX), the parent company of Zara, saw its shares fall over 2% on Thursday after RBC Capital Markets downgraded the company’s rating to "underperform" from "sector perform."

Reasons for Downgrade

Analysts cited valuation concerns and moderated growth expectations as the main reasons for the downgrade. RBC highlighted that while Inditex remains a strong player with an exceptional business model, its current valuation appears stretched.

Valuation Metrics

The company trades at a price-to-earnings ratio of approximately 25 times its estimated 2025 earnings, which RBC considers "full" compared to its peers.

Price Target Revision

RBC also reduced its price target for Inditex to €50 from €52, indicating limited upside potential from the current share price.

Earnings Forecasts Adjusted

Inditex recently reported softer-than-expected third-quarter results, prompting RBC to revise its earnings forecasts for fiscal years 2025 and 2026 downward by 2-4%. This adjustment is attributed to factors such as a strong sales base, headwinds from USD sourcing costs, and constrained operating expense leverage.

Market Challenges

The retailer faces challenging market conditions in Asia, particularly in China, as well as adverse foreign exchange impacts in markets like Mexico and Brazil.

Strengths and Sales Growth

Despite these challenges, RBC noted that Inditex’s strengths include its efficient supply chain, quick response business model, and dominant market share in Spain and parts of Europe. However, the brokerage warned that Inditex’s sales growth could moderate further, with next year’s expected growth potentially falling below market forecasts.