‘Just Buy It’: Why Analysts Are Still Bullish on Nike After Mixed Earnings Quarter

Despite a mixed third quarter marred by port congestion delays and store closures abroad, analysts remain bullish on Nike Inc. and suggest that its COVID-19-related disruptions are only temporary.

The sportswear giant yesterday posted earnings that rose 71% to $1.4 billion, or 90 cents per share, trouncing predictions of 76 cents per share. Revenues, on the other hand, increased 3% to $10.4 billion but fell sizably short of Wall Street’s forecasts of $11.02 billion. The company attributed the drop in sales to global container shortages and the gridlock at U.S. docks, as well as the shutdown of nearly half of its physical fleet in Europe.

But market watchers appear to have dismissed Nike’s near-term headwinds and are looking ahead at its long-term prospects.

In a distribution note, CFRA Research equity analyst Camilla Yanushevsky maintained a “strong buy” on the Beaverton, Ore.-based company’s stock, with a 12-month price target of $170 per share. (Its stock is currently down about 4% to $136.88.) She cited the resumption of team sports, its Consumer Direct Offense strategy and a broader organizational revamp among the catalysts expected to drive Nike’s shares in the months to come.

“When it comes to Nike, investors should ‘Just Buy It,'” Yanushevsky said. “While COVID-19 has prompted many retailers to draw down their revolvers, permanently shut stores, cut down on marketing and capital expenditures — and focus solely on survival — Nike’s fortress balance sheet and dominant position has allowed it to be at the forefront of innovation and capture an even greater competitive advantage.”

Even more optimistic on Nike is Williams Trading equity analyst Sam Poser, who raised his price target for the brand from $175 to $189. In his note, Poser wrote that “compelling product, clean inventory and expense controls” led to the Swoosh’s EPS beat. What’s more, he touted the 54% surge in owned digital sales — with 35% penetration in total owned and partnered digital sales — as well as its performance in China, where revenues advanced 42% on a currency-neutral basis.

“Digital prowess; best-in-class customer engagement, enhanced by increasing use of data; and unrivaled product innovation continues to accelerate,” he added. “The strength of the Nike and Jordan brand, across categories and geographies, grew throughout the pandemic [and] will accelerate post-pandemic. Nike continues to take share and solidify its position as the most dominant athletic footwear and apparel brand in the world.”

JPMorgan equity research analyst Matthew Boss also raised his price target for Nike to $176 from $170, calling out the company’s guidance for the fourth quarter: In a conference call with analysts, Nike EVP and CFO Matthew Friend announced expectations for the athletic behemoth’s revenues to grow roughly 75% versus the prior year, as government-mandated restrictions in Europe start to ease and inventory transit times improve in its home turf of North America.

“Nike is the global athletic market leader with diversification across product categories, geographies and distribution,” Boss wrote. “We see Nike’s brand momentum across geographies as sustainable and providing insulation to macro volatility and supporting at minimum sustainable, multi-year high single digit top-line growth. We view this, combined with continued gross margin expansion, driving at least multi-year mid-teens sustainable EPS growth.”

Currently, about 35% of the Nike’s owned stores are still closed because of the pandemic. As for inventory supply, the brand’s management team shared in the call that it expects to capture delayed revenues in the fourth quarter.

“We’ve now effectively absorbed the longer lead times through our third quarter, and so we do expect a more consistent flow of inventory in the fourth quarter,” president and CEO John Donahoe said, adding that “no matter what happens — COVID spikes, forced store closures, port congestion on the West Coast and more — this team responds with solutions. We adjust, and we win.”

Also today, Nike confirmed that an unspecified number of employees will be impacted by a new round of layoffs that are part of its previously announced reorganization plans. “We are building a flatter, nimbler company and more quickly transforming Nike to define the marketplace of the future,” Nike said in a statement to FN.

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