Nike’s Stock Is Weighing on Wall Street Today — But Here’s What Analysts Think

Market watchers may have set the bar too high for Nike Inc. ahead of Thursday’s third-quarter earnings results.

The athletic behemoth’s is feeling the heat today after it posted better-than-expected overall profits and in-line sales but its growth in North America as well as its fiscal 2020 outlook failed to pacify investors.

As of 11 a.m. ET, Nike shares were down close to 6 percent to $83.06 and were at least partially to blame for U.S. markets reversing a rally on Thursday. At press time, the Dow Jones Industrial Average was in the hole 291 points to $25,671, the S&P 500 had shed 33 points to 2,822, and the Nasdaq had tumbled 109 points to $7,729.

Nike said yesterday that its Q3 revenues gained 7 percent year over year to hit $9.6 billion, in line with what market watchers had expected. It also reversed its year-ago losses to post Q3 profits of $1.1 billion, or 68 cents per share, besting the 65 cents per share analysts had predicted. The company’s North America sales — a region in which it had experienced declines — grew 7 percent in Q3 to $3.8 billion, just shy of the $3.9 billion analysts had expected.

For fiscal year 2020, the firm expects to deliver high-single-digit revenue growth as well as gross margin expansion and profitability in line with the long-term financial model it produced in 2017.

Despite investors’ reactions, analysts remained overwhelmingly upbeat on Nike on the heels of yesterday’s results. Susquehanna Financial LLLP analyst Sam Poser wrote today that the timing of certain product launches resulted in North America’s revenue falling short of expectations, while stronger-than-anticipated foreign exchange headwinds resulted in 4Q19 guidance being below Street expectations.

“However, do not be fooled: Underlying momentum remains incredibly strong,” Poser added. “Increasing digital prowess, a robust product pipeline and exceptionally clean inventory will continue to drive healthy FX-neutral revenue and margin growth across categories and geographies for the foreseeable future. Improvements in the speed of the product pipeline and digitally driven consumer engagement are still in their early stages and will provide a long runway for top- and bottom-line growth.”

Citing similar upsides, Canaccord Genuity analyst Camilo Lyon also reiterated a “buy” rating on Nike’s stock, while Cowen’s John Kernan and Wedbush’s Christopher Svezia both maintained an “outperform” rating — with the latter referring to Wall Street’s sell-off as “overly dramatic.”

On a call with investors Thurday, Nike EVP and CFO Andrew Campion said the firm’s optimism about future growth is “buoyed by our current momentum, our brand heat with consumers, our robust innovation pipeline and the positive early signals we are receiving from our Nike Direct business and our strategic wholesale partners.”

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