Shares of Nike Inc (NYSE:NKE) added almost 7% late morning on Friday after the athletic apparel and footwear company posted a first quarter fiscal 2024 earnings beat driven by increased sales in the Latin America and Europe, Middle East and Africa (EMEA) regions.
Analysts at UBS reiterated their ‘Buy’ rating on Nike stock and US$150 price target following Nike’s earnings report.
Nike shares had gained 6.7% to US$95.63 shortly before noon on Friday.
The analysts wrote that they see a 67% upside with their US$150 price target on Nike’s “attractive” long-term outlook.
“We continue to think Nike's investments in product innovation, supply chain speed, and digital will unlock a multiyear period of above-average growth,” they wrote in a note to clients.
“Plus, we believe Nike has the brand strength, strategy, skills, resources, and balance sheet to outperform peers through a recession. Nike's 1Q fiscal 2024 earnings report gives us increased conviction in this view.”
The analysts believe the market is underestimating many aspects of Nike’s growth outlook, especially its earnings before interest and taxes (EBIT) margin rebound potential.
They believe the narrative around the stock will change should Nike achieve its second quarter revenue guidance.
“Investors likely become less concerned around China macro, running category share loss, and elevated inventory levels in favor of getting excited about a stabilizing top-line trajectory with an accelerating rate of margin expansion,” they wrote.
“In this scenario, the market stops viewing Nike's second half fiscal 2024 guide as a hockey-stick and instead sees Nike's growth outlook at an inflection point.”
Bank of America (BoA) analysts, however, remain ‘Neutral’ on the stock with a US$100 price target.
They see a balanced risk-reward, noting that Nike’s improving gross margin trajectory was offset by the challenging sales environment, particularly in wholesale.
“Management was encouraged by mid-single-digit retail sales growth and the high single-digit to low double-digit increase in sell-out at key global wholesale accounts,” the BoA analysts wrote.
“The company spoke of a strong innovation pipeline and a focus on driving improved consumer connectivity with its running franchise. We think these two factors are crucial to drive growth going forward.”
However, they noted that Nike’s margins in China remain challenged, at more than 600 basis points below peak levels.
They noted that its EBIT margins in Greater China declined by 240 basis points year-over-year to 30.3%, less than their 34.7% forecast, in part driven by a stronger US dollar.
“Outsized growth in the region is important for the longer-term margin story,” the analysts wrote.
“Management struck a positive tone around Nike's position in the market, saying that promotions are elevated in the region but Nike's cleaner inventory versus the market gives it a relative advantage.”
Contact the author at emily.jarvie@proactiveinvestors.com
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