Jefferies turns bearish on On Holding, sees Nike leading in running shoe demand

Jefferies has downgraded On Holding to an "underperform" rating, citing expectations for sales growth to peak in 2025, slowing U.S. retail expansion, and a projected shift of retailer orders back to Nike by 2026 due to On's high prices and narrow product range. The firm now forecasts On's sales and EBITDA to be 5% and 10% below Wall Street consensus, respectively, with a $40 price target. Conversely, Jefferies maintained a "buy" rating on Nike, highlighting its strong momentum in the running category, where models like the Vomero Plus are outperforming On's offerings in consumer interest and retail sell-through, aligning with Nike's robust order book and new product strength.

Analysis

Jefferies has initiated a significant shift in its view on the competitive landscape of the performance running shoe market, downgrading On Holding (ONON) to "underperform" while reiterating a "buy" rating on Nike (NKE). The core of the thesis rests on the expectation that On's sales growth will peak in 2025, driven by slowing expansion in U.S. retail channels and a projected shift in retailer orders back towards Nike in 2026. Jefferies attributes this to On's high price points and narrow product range, which may be limiting its total addressable market. Consequently, the brokerage has positioned its sales and EBITDA estimates for On at approximately 5% and 10% below Wall Street consensus, respectively, anticipating valuation multiple compression. The analysis is supported by channel checks and data indicating Nike's resurgence; specifically, the Nike Vomero Plus is noted to be outperforming On's Cloudsurfer Max in both consumer search interest, per Google Trends, and retail sell-through at key outlets like Dick's Sporting Goods. This trend corroborates Nike's own recent commentary on a strengthening order book and the success of its new product pipeline, positioning the incumbent to reclaim momentum from the high-growth challenger.

Key Decisions for Investors

• Investors holding On Holding should reassess their positions given the forecast for slowing growth, potential valuation compression, and sales estimates falling below consensus.
• The analysis presents a bullish case for Nike, suggesting that its product innovation and competitive strategy are effectively recapturing market share, which may support further upside.
• Consider a pairs trade strategy of long Nike (NKE) and short On Holding (ONON) to capitalize on the diverging fundamental outlooks and competitive momentum detailed in the report.
• Monitor key performance indicators in upcoming quarters, such as retail sell-through data and management guidance from both companies, to validate whether the predicted market share shift materializes.