Bank of America Global Research analyst Lorraine Hutchinson reiterated her Neutral rating on the stock and cut the $122 price objective to $100. BofA thinks that Nike is “not out of the woods” yet in China, despite management’s upbeat comments on prospects for a solid second half in the country.
Faster-than-expected recovery in China and better-than-expected margin improvement as Nike continues its exit from “undifferentiated retail channels” could push BofA’s price objective higher. On the downside, the target could fall if Chinese cotton boycotts have a larger-than-expected negative impact, if transitioning to a more digital-centric model is more costly than expected, and if markets continue to boost “value over growth names.”
Kate McShane and her team at Goldman Sachs reiterated their Buy rating but cut Nike’s price target from $120 to $98. Nike’s current valuation looks “attractive relative to historical price levels,” and that, combined with the company’s product innovations (particularly in shoes) and its success in winnowing its Chinese inventory, provides the basis for the rating.
Again, inventory issues get a close look. Nike’s aggressive plan to clear its inventory overhang will pressure gross margins for the rest of the year, Goldman said, “but will allow the company to align their seasonal inventory and product assortment with consumer preferences and demand trends.” In other words, the sooner the pain, the sooner the gain.
J.P. Morgan’s Matthew Boss and his team maintained an Overweight rating on the stock but cut the December 2023 price target from $130 to $120. Boss models fiscal 2023 EPS at $3.20, more than 6% higher than the consensus. In addition, Boss’s team sees a “fundamental risk/reward range of $91 (20x our CY24 EPS = 5-year trough multiple) by $120 (26.5x our CY24 EPS = 5-year pre-pandemic multiple avg).”
Nike’s September sales in North America and EMEA (Europe, Middle East, Africa) are up by double digits, including “strong” back-to-school sales. Management also noted that promotional pricing meant to clear the inventory of out-of-season gear contributed to the top-line surprise in the first quarter but was not one of the big swing factors.
Despite the upbeat comments, Nike stock traded down by nearly 10.5% in the late morning Friday, at $85.38 in a 52-week range of $82.50 to $179.10. The low was posted early in the morning. Investors do not appear to be as patient as analysts, especially with inflation and a possible recession looming.
Originally posted at 24/7 Wall St.
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