Zara’s parent company Inditex celebrates strong performance

Inditex celebrated a strong showing on the stock market on February fourth. The textile company is the parent company of Zara, Pull & Bear, and Massimo Dutti, among other brands. Inditex shares increased in value by 2.32% on the stock market, thanks to the support of RBC Capital Markets. These analysts have once again included the company among their favorite stocks, while raising the target price they give it by 6%

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Taking stock of the situation

Inditex’s shares were among the most bullish on the Spanish stock market on February 4th.  The company closed on Monday, February 3rd, at $33,60 (€30,55) per share. On Tuesday, February 4th, the shares hit an intraday high of $34,62 (€31.48). The reason for that is the clear support received from RBC.

It’s no secret that this Canadian investment bank is a fan of the apparel giant founded by Amancio Ortega. Investors are celebrating the fact that RBC has once again included Ortega among its favorite stocks. In particular, it has once again placed its recommendation on the company in ‘top pick’ after lowering it to ‘over return’ (comparable to ‘buy’) last September, after more than a year and a half of ‘favoritism’.

The analysts predict that the “strong performance of comparable sales” of Inditex will continue. They also believe that “the positive effect of a weaker euro on its profits is underestimated.” The company will publish its results for the 2019 fiscal year on March 18th.

As a result, RBC has raised its 12-month price target by 6%, going from $36,43 (€33) per share to $38,64 (€35). This represents a double-digit upward potential for the company’s shares in the short term, giving 14.6% with respect to the closing price.

The Canadian investment bank already pointed out Inditex as its favorite among European textile companies in April 2019, stressing then that “the forecasts in terms of cash flow and margins for the sector” were improving.

More optimism than consensus

However, the Toronto-based company’s forecasts for textiles are much more optimistic than those of the marketplace. Moreover, the consensus of analysts gathered by Bloomberg considers that the owner of Zara no longer has potential on the stock market: it gives it an average 12-month target price of $33,84 (€30,65) per share.

Even so, almost half of these experts (45.2%) advise ‘buying’ Inditex shares. Another 35.5% gave a recommendation to ‘hold’ and the remaining 19.4% opted to ‘sell’.

Time to go all in?

To buy or not to buy? That’s the question. And even more so when the stock starts rising so sharply. In Joan Cabreros (Ecotrader’s Strategy Director) opinion, if you look at the technical analysis, it is time to bet on Inditex. She mentioned this during a commentary on Monday, February 3rd, and invited people to buy if the shares were to exceed $34,40 (€31,16) in value, something that we saw happen the next day on Tuesday, February 4th.

The expert believes that Inditex’s shares will “very probably” revalue in the short term to $37,86 (€34,30), that is, to the historical maximums reached in 2017. This represents a journey of more than 9% from its current levels.

“In the worst case the current correction could seek the old resistance, now support, of $32,01 (€29),” added the technical analyst. Although he bets more that “the increases will be resumed without reaching this environment.”

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(Featured image by Austin Distel via Unsplash)

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First published in elEconomista.es, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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