Analyst unveils new Nike price target ahead of big summer for sports

Nike, one of the worst-performing stocks in the Dow over the past five years, is keying on a summer of major sporting events.

Apr 11, 2024 - 18:30

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Analyst unveils new Nike price target ahead of big summer for sports

Nike (NKE) share jumped Thursday but remain firmly in the red since the start of the year, as analysts look for the world's biggest sportwear group to leverage gains from a huge summer of global sporting events.

Nike, which on April 11 unveiled new uniform kits for the Paris Olympics in the French capital, is also outfitting nine of the 24 teams in this summer's European soccer championships, which will be played in Germany.

That follows the sportswear giant's bold move to steal a march on its main rival, Adidas (ADDYY) , in winning the rights to outfit the German national team, starting in 2027. That wrested away a sponsorship that had been in place since the early 1950s.

Nike is hoping to use the high-profile events, as well as the iconic German team sponsorship, to win back its share of sales in key global markets, including China, following a muted sales outlook issued earlier this year.

Nike CEO John Donahoe wants the sportswear giant to build a 'pipeline of innovation' into its autumn Investor Day.

Nike told investors last month that it expected revenue in the first half of its fiscal 2025 to shrink by a single-digit percentage as it continued to target cost cuts and supply-chain improvements and to focus on new-product innovation.

Nike has been a major Dow laggard

Shares in the group, a Dow 30 component, have lagged the broader benchmark for much of the past five years, rising only 3.2%. The company continues to face challenges from Adidas and athleisure producer Lululemon Athletica (LULU) , as well as stagnant spending and domestic rivals in China.

Bank of America Securities analyst Lorraine Hutchinson says, however, that Nike's near-term estimates, as well as its overall valuation, are "finally looking compelling." She lifted the investment bank's rating and price target on the sportwear group.

Hutchinson added $3 to her Nike price target, taking it to $113 a share, and boosted her rating to buy from neutral. In a note published Thursday, she said "now is a good time for investors to buy the dip in Nike shares."

"Estimates finally look achievable, Nike is taking bold steps to transform, and the stock sits at a 10-year trough relative" price-to-earnings multiple, Hutchinson wrote. "Our estimates call for mid-single-digit revenue growth with margin expansion."

Hutchinson also notes that Nike's autumn Investor Day, the first in seven years, should generate excitement and demand for its new products, part of what Chief Executive John Donahoe called "a robust pipeline of innovation."

Nike Investor Day event in focus

"Nike has historically benefited from the newness and marketing around the Olympics, and we see this year as no different," Hutchinson said. "Nike has ramped innovation ahead of the event, and we model accelerating demand creation spending to generate excitement."

"Innovation has lagged in recent years, and new-product development and launches are key to the return to growth," she added.

"Management has acknowledged a need for big changes and continued shakeup in the team, and processes from the recently announced cost-savings plan could also" help sales stabilize.

CEO Donahoe told investors on a conference call last month that Nike has "pulled forward several innovations more than a year" and wants to "delight consumers and disrupt the industry."

"Our brand storytelling will leverage our athletes and sport moments to become sharper and bolder, beginning with the Olympics this summer," he added. "And we're increasing our investment in wholesale to help us elevate and grow the entire marketplace."

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Nike's fiscal 2024 third-quarter U.S. sales rose 3% from a year earlier to $5.07 billion, with overall sales essentially flat at $12.43 billion. China revenue rose 4.5% to $2.08 billion.

Rival Adidas, meanwhile, posted its first annual loss in three decades and warned investors that bloated U.S. inventories would weigh on profit and margins over the coming quarters.

China sales, however, are expected to grow at a double-digit rate this year, following an 8% gain in 2023, under the leadership of new CEO Bjorn Gulden.

Nike shares were marked 1.75% higher in premarket trading to indicate an opening-bell price of $90.55 each. Such a move would still leave the stock down more than 14% for the year.

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