This is Morgan Stanley's only preferred sportswear stock

Investing.com -- Morgan Stanley resumed coverage of sportswear brands with a cautious view on the group, citing structural industry fragmentation, elevated promotions, and weak consumer sponsorship. Analysts led by Alex Straton wrote that these factors create "a triple headwind" for the sector.

The Wall Street giant named On Holding as its only Overweight-rated stock in the group, while rating Nike and Under Armour Underweight and Adidas Equal-weight.

For On Holding, Morgan Stanley said the stock’s roughly 40% year-to-date decline "overstates medium-term fundamental deterioration," with consensus underestimating both growth durability and margin maturation. The firm set a $39 price target, implying about 45% upside, and said it expects a re-rating to take time as new management builds credibility.

The analysts said On’s Americas and EMEA growth outlooks are more durable than the Street assumes, pointing to continued direct-to-consumer strength and healthy trends in Europe, including roughly 21% constant-currency growth in the second quarter. They also called profitability "the ’Dark Horse,’ or most underappreciated part of the equity story," citing potential margin expansion under new management.

For Nike, Morgan Stanley set a $31 price target, implying about 20% downside, saying "the market is underwriting recovery faster than the evidence supports." The analysts said consensus embeds too much growth too soon, particularly in China, where a distribution exit with two online retail partners could create downside not yet reflected in estimates.

Under Armour also received a $4 price target, implying roughly 20% downside. Analysts said "turnaround traction remains limited" across its survey, market share, and demand work, adding that the Street’s return-to-growth assumptions look "premature."

Adidas was rated Equal-weight with a $31 price target, about 10% above current levels. The brand’s superior growth and profitability are "largely reflected in already-full consensus expectations and a premium valuation," the analysts wrote, leaving limited room for either positive estimate revisions or multiple expansion.

Across the group, Morgan Stanley pointed to a broader shift in market share toward "niche/premium, Chinese domestic, & broader fashion brands," compounding pressure from elevated promotional activity and weakness at industry leader Nike.

This backdrop, combined with soft consumer sentiment amid a still-dominant AI and technology trade, creates near-term earnings pressure and an "unfavorable equity-market backdrop" for the sector overall, the analysts said.

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