Overheard on Wall Street: Analysts React to Nike’s Q4 Blowout

Nike, Adidas, Reebok and Jordan Weekend
The latest colorway of Nike's Kevin Durant signature shoe, the KD8.
Courtesy of Nike

Just when Wall Street thought Nike Inc. had reached its peak, the Beaverton, Ore.-based athletic footwear and apparel company raised the bar again. Be it share price, profits or revenues, as far as Nike is concerned, the only direction is up.

After the firm’s impressive Q4 close — which blew past Wall Street’s estimates — Nike’s share price continues to surge. And that follows the firm’s share price hitting a 52-week high of $110.34 on June 22.

Now, analysts are upping their price targets for the apparel-and-footwear giant at a frenzied pace.

Citi Research analyst Kate McShane raised her price target yesterday to $126 from $120, while UBS Investment Bank analyst Michael Binetti added $12 to his previous price target, bringing it up to $122. And Nomura Securities International Inc. analyst Robert Drbul upped the ante by $15, raising his price target from $110 to $125.

McShane, Binetti and Drbul all pointed to Nike’s substantial gains even against challenging World Cup comparisons, as well as the company’s ability to dominate in a tough macroeconomic environment of the West Coast ports slowdown and FX pressure.

“There are several [long-term] catalysts emerging that should help support an extended competitive-advantage period, as well as Nike’s [price-earnings-ratio] premium,” wrote Binetti yesterday. “New manufacturing technologies coming online over the next few years should offer a significant opportunity to improve Nike’s large working-capital balance with shorter lead times if production can move closer to end consumers.” He rates Nike a “buy.”

McShane said Nike’s Q4 results underscore “management’s ability to drive the marketplace with premium, innovative product, elevated brand presentation, and a best-in-class supply chain.” She, too, rates Nike a “buy.”

McShane also noted that she expects to see the firm’s share price rise on strong revenue growth despite increasingly tougher compares, better-than-expected gross-margin expansion driven by pricing power and supply-chain efficiencies and lower-than-expected SG&A dollar growth for FY16.

There are a few less bullish market watchers. Sterne Agee CRT analyst Sam Poser and Susquehanna Financial LLP analyst Christopher Svezia rate Nike’s shares “neutral.”

“We remain neutral on the stock despite the fact that we view the company as best-in-breed,” Poser wrote in a note yesterday. “The 13 percent increase in future orders is very powerful, as is the strong growth across almost all categories and geographies.”

However, Poser said, he was “a bit surprised” that the firm’s inventory levels were up 10 percent and also expressed concern about “how Nike will optimize the 2016 Olympics after the cleanup needed following the 2014 World Cup.”

Svezia, who has the most modest price target for Nike of the bunch at $100 to $103, continues to cite valuation as his roadblock.

“We remain confident with continued sales momentum ahead given healthy futures and following double-digit full-year growth across North America, Europe and China,” wrote Svezia. “Importantly, while Emerging Markets remain challenged, we believe Nike did a good job rebounding from minor concerns that arose in 3Q, such as currency pressure, ports and a slowdown in core running. We are increasing our estimates and price target but remain sidelined at these levels until we see a more compelling opportunity.”