Bullish Sentiment Surrounding Nike, but Stock Vulnerable
While Wall Street generally holds an upbeat view of Nike’s recent performance, there are concerns about the potential vulnerability of the stock when the results are released. Wedbush analyst Tom Nikic noted that conversations with investors about Nike have been “skewed surprisingly bullish,” with many expressing excitement about the company’s potential for accelerated revenue growth in 2024 due to leaner sales-channel inventories. However, Nikic emphasized the importance of recognizing that Nike is not yet firing on all cylinders.
Nikic further expressed uncertainty about whether a simple reiteration of guidance would be enough considering the stock’s recent strong performance. In its first-quarter report, Nike stated that it expected full-year revenue growth in the mid-single-digits range, while the current FactSet revenue consensus for fiscal 2024 implies growth of 3.7%. Despite these reservations, Nikic restated his outperform rating on the stock and maintained his price target at $145, suggesting a potential upside of approximately 19% from current levels.
Analysts’ Outlook and Key Metrics to Watch
Among the 36 analysts surveyed by FactSet, Nikic ranks as the second-most bullish on Nike’s stock. The most bullish analyst, Brian Nagel from Oppenheimer, has set a price target of $150.
In terms of revenue, Nike reported North America revenue of $4.81 billion for the second quarter, a decline of 17.5% compared to the previous year. Meanwhile, revenue from Europe, the Middle East, and Africa is expected to decline by 2.4% to $3.41 billion, while Greater China revenue is forecasted to increase by 18.9% to $2.13 billion.
Gross margin is another key metric to watch, with the first-quarter gross margin reaching 44.2%, up from 43.6% in the previous quarter. Additionally, Nike’s inventory value at the end of August stood at $8.7 billion, representing a 10% decrease from the previous year.
Looking at historical data, past performance following earnings reports shows a mixed trend. FactSet data reveals that over the past 10 quarters, Nike’s stock has gained the day after results were reported five times, with a median gain of 6.7%. Conversely, it has also declined five times, with a median loss of 6.3%.