Case Study: What Credible analysts are saying on NIKE (NKE) stock
Key Points
Nike (NKE) shares have risen by 11.2% this week. However, on a year-to-date basis, they’re still down by 29.2%. This compares poorly to the S&P 500, which is down by 19.9% during 2022 thus far.
Nike posted third quarter earnings this week, beating Wall Street’s estimates on both the top and bottom lines, sparking a double digit share price rally on Wednesday.
Nike’s Q3 revenue came in at $13.3 billion, representing 17.3% year-over-year growth, beating consensus estimates by $740 million. During the third quarter, Nike posted $0.85 in non-GAAP earnings-per-share which was $0.21/share above Wall Street estimates.
75% of recent articles published by credible authors focused on NKE shares offer a “Bullish” bias. 9 out of the 11 credible credible Wall Street analysts who cover Nike believe shares are likely to rise in value. The average price target being applied to Nike by these credible analysts is $115.27, which is in-line with Nike’s current share price of $116.38.
Mathew Fox, a Nobias 4-star rated author, highlighted Nike’s big Wednesday rally saying: “Nike rallied 14% in Wednesday trades after the corporate stated footwear and attire gross sales rose 25% and 4% within the quarter, respectively. Gross sales in North America had been up 30%, and maybe extra encouragingly, the corporate raised its revenue-growth outlook.”
Geoff Considine, a Nobias 5-star rated author put a spotlight on Nike’s big post-earnings rally; however, offered a more cautious take, stating, “Including the most recent quarter, NKE has beaten expectations on EPS for 10 successive quarters. Over this period, there's essentially no earnings growth, which has probably contributed to negative sentiment on the stock.”
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NKE Dec 2022
2022 has been a tough year for apparel stocks. Ongoing supply chain issues and inflationary pressures on labor and raw materials have resulted in bloated inventories and margin compression across the industry. Nike (NKE), with its $180 billion+ market cap is often considered a bellwether for the space, and the consumer at large.
This week, Nike posted its third quarter earnings, beating Wall Street’s estimates on both the top and bottom lines, resulting in a double digit rally. Nike shares have risen by 11.1% this week. Yet, on a year-to-date basis, they’re still down by 29.2%.
Since Nike reported its third quarter earnings, , Nobias sees significant bullish sentiment surrounding this stock, even with its recent double digit rally and premium valuation in mind.:
Kate Fitzsimons of Wells Fargo, a Nobias 5-star rated analyst, raised her price target on Nike to $135 from $130 and kept an Overweight rating on the shares.
John Kernan of Cowen, a Nobias 5-star rated analyst, raised his price target on Nike to $131 from $122 and kept an Outperform rating on the shares.
Lorraine Hutchinson of Bank of America, a Nobias 5-star rated analyst, raised her price target on Nike to $120 from $112, keeping a Neutral rating on the shares.
Rick Patel of Raymond James, a Nobias 5-star rated analyst, raised his price target on Nike to $130 from $99 and kept an Outperform rating on the shares.
Jay Sole of UBS, a Nobias 4-star rated analyst, raised his price target on Nike to $146 from $141, keeping a Buy rating on the shares.
Sole also named Nike his “top pick” for 2023.
Bullish Nobias credible authors:
Mathew Fox, a Nobias 4-star rated author, highlighted Nike’s big Wednesday rally in an article that he published at Raw News Finance, stating, “Nike rallied 14% in Wednesday trades after the corporate stated footwear and attire gross sales rose 25% and 4% within the quarter, respectively. Gross sales in North America had been up 30%, and maybe extra encouragingly, the corporate raised its revenue-growth outlook.”
Sophie Smith, a Nobias 5-star author, covered Nike’s third quarter earnings in a report that she published at The Industry .Fashion this week. Smith reported, “Nike, Inc. has reported a 17% increase in revenue to £10.9 billion ($13.3 billion) for the second quarter ending 30 November 2022.” She continued: “Nike brand revenue increased 18% to £10.4 billion ($12.7 billion), with growth across all geographies and channels. Converse brand revenue increased 5% to £483 million ($586 million), led by double-digit growth in North America, partially offset by declines in Asia.”
Touching upon the stock’s bottom-line, Smith said, “Gross profit rose 10% to £4.6 billion ($5.7 billion), but gross margin decreased 300 basis points to 42.9%.” Regarding the company’s margin compression, Smith wrote, “The decrease was due higher markdowns to liquidate inventory, continued unfavorable changes in net foreign currency exchange rates, elevated freight and logistics costs and increased product input costs, partially offset by strategic pricing actions.”
In Nike’s Q3 earnings report, the company took steps to highlight the continued growth of its eCommerce business. The company’s press release stated:
NIKE Direct sales were $5.4 billion, up 16 percent on a reported basis and up 25 percent on a currency-neutral basis
NIKE Brand Digital sales increased 25 percent on a reported basis, or 34 percent on a currency-neutral basis
Within the company’s Q3 report, Nike’s President and CEO, John Donahoe, was quoted saying, "NIKE’s results this quarter are a testament to our deep connection with consumers. Our growth was broad-based and was driven by our expanding digital leadership and brand strength. These results give us confidence in delivering the year as our competitive advantages continue to fuel our momentum."
Furthermore, Nike’s Executive Vice President and Chief Financial Officer, Matthew Friend, said, “"Consumer demand for NIKE's portfolio of brands continues to drive strong business momentum in a dynamic environment. We remain focused on what we can control, and we are on track to deliver on our operational and financial goals — setting the foundation for sustainable, profitable growth."
With specific regard to inventories, Nike’s report stated, “Inventories for NIKE, Inc. were $9.3 billion, up 43 percent compared to the prior year period, driven by an increase in units from lapping prior year supply chain disruption, as well as higher input costs.”
With regard to its balance sheet, Nike said, “Cash and equivalents and short-term investments were $10.6 billion, down approximately $4.5 billion from last year, as free cash flow was offset by share repurchases and cash dividends.”
Bearish Nobias credible authors:
Geoff Considine, a Nobias 5-star rated author, published a post-earnings article at Seeking Alpha this week titled, “Conflicting Indicators For Nike In 2023”. Considine put a spotlight on Nike’s big post-earnings rally; however, offered a more cautious take, stating, “Including the most recent quarter, NKE has beaten expectations on EPS for 10 successive quarters. Over this period, there's essentially no earnings growth, which has probably contributed to negative sentiment on the stock.”
“Earnings growth is a significant concern,” he continued, “and the consensus outlook is for a modest 7.49% compound annual EPS growth over the next three to five years.” Considine warned that the stock is carrying an expensive valuation, relative to these growth prospects, stating, “It's also notable that the forward P/E, 34.59, continues to be quite high.” Despite these valuation concerns, he notes that Wall Street remains bullish on Nike shares.
Considine looked at the data provided by 28 Wall Street analysts who cover NKE shares and said, “The consensus rating is a buy, as it has been for all of the past year, and the consensus 12-month price target is $125.81, 8.66% above the current share price.”
However, he went on to question the usefulness of this consensus estimate, stating, “It's also notable that the spread among the individual analyst price targets has increased substantially.” “Back in January,” Considine wrote, “the highest and lowest price targets were $202 and $170, from a group of 20 ranked analysts.” “Today,” he continued, “the highest and lowest price targets are $185 and $79, from a group of 28 ranked analysts.” Considine concluded, “The larger the spread among the individual price targets, the lower the predictive value.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
With regard to his personal buy/sell/hold rating, Considine stated, “As a rule of thumb for a buy rating, I want to see an expected total return that is at least ½ the expected volatility. NKE falls far short of this threshold.” And therefore, he said, “Even with the 12%-plus jump in the share price today, the market-implied outlooks are generally favorable for NKE over the next year, although more so for the first half. Because of the conflicting indications, I'm downgrading NKE to a hold.”
Overall bias of Nobias Credible Analysts and Bloggers:
Although Considine is cautious, the vast majority of credible authors and analysts that the Nobias algorithm tracks remain bullish on NKE shares. 75% of recent articles published on Nike by credible authors expressed a “Bullish” bias.
Furthermore, 9 out of the 11 credible Wall Street analysts that Nobias tracks who have provided an opinion on Nike shares believe that the stock is likely to increase in value. Yet, due to low price targets by the bearish analysts that Nobias follows, the average price target being applied to NKE shares by the credible analyst community overall is $115.27. This is slightly below Nike’s current share price of $116.38, pointing towards tepid growth prospects in the near-term.
However, it is important to note that we’ve seen several credible analysts raise their price targets for Nike after digesting the Q3 results and if this trend continues in the coming days/weeks, the average price target for Nike would rise.
Disclosure: Nicholas Ward is long NKE. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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