Nike shares surged nearly 6% in pre-market trading on Tuesday as several equity analysts raised their price targets after the world’s largest athletic footwear and apparel seller beat earnings estimates for the fiscal second quarter; however the steep decline in revenue from China was difficult to ignore.
The Beaverton, Oregon, footwear retailer reported earnings per share (EPS) of $0.83, beating the Wall Street consensus estimates of $0.73 per share. The company’s overall revenue rose 1% to $11.36 billion. That was also above the market expectations of $11.25 billion.
“Of concern, however, its sales in greater China fell 20% from 2020, missing our forecast of a 1% drop, and were flat versus 2019. Nike blamed the shortfall on supply shortages due to the virus-related factory shutdowns in Vietnam (since reopened) and store disruptions due to COVID-19 restrictions in China,” noted David Swartz, equity analyst at Morningstar.
“While we acknowledge these were factors, we also think there has been a (likely temporary) decline in demand for non-native sportswear from Chinese consumers in recent months. Nonetheless, we believe demand for Nike products in other regions is strong and expect to lift our per share fair value estimate of $128 by a low-single-digit percentage. However, we would look for a more attractive entry point; Nike’s current P/E of about 40is high on an absolute basis and as compared with the 10-year average of 34.”
Nike stock jumped nearly 6% to $166.0 in pre-market trading on Tuesday. It soared over 10% so far this year.
“Despite the Omicron unknowns, Nike’s (NKE) fiscal Q2 has confirmed a healthy demand backdrop (despite stronger than feared headwinds in China). Strong gross margin tailwinds were another highlight, with NKE confirming good progress in overcoming the Vietnam disruptions of this past summer. An only modest upgrade to FY guidance despite a 30% Q2 EPS beat could translate in limited uplifts to European peers,” noted James Grzinic, equity analyst at Jefferies.
Nike Stock Price Forecast
Twenty-four analysts who offered stock ratings for Nike in the last three months forecast the average price in 12 months of $185.30 with a high forecast of $202.00 and a low forecast of $160.00.
The average price target represents a 9.26% change from the last price of $169.59. Of those 24 analysts, 20 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $202 with a high of $367 under a bull scenario and $115 under the worst-case scenario. The firm gave an “Overweight” rating on the footwear and apparel seller’s stock.
“Nike (NKE) beat Street estimates & guidance despite ongoing supply chain disruption. Guidance delivery likely gives investors confidence in NKE’s N-T path back to its L-T targets, as shown by the +4% AMC move. Disruption will linger through FY22, but the L-T oppty remains unchanged. Stay OW; PT to $202,” noted Kimberly Greenberger, an equity analyst at Morgan Stanley.
“NKE is in the early innings of transition from a wholesaler to a DTC brand. Success would make it one of few to benefit from the shift to eComm (~20% of ‘21 sales). Its DTC business (~37% of ‘21 sales) is igniting its next phase of margin-accretive revenue growth, driving a 16% 5Y EPS CAGR. NKE also stands to benefit from advancing global consumer activewear demand (due to the WFH-induced preference for comfort-oriented apparel/footwear and increased focus on health & wellness). NKE’s strategic portfolio decisions, tech investments, and supply chain innovation also create LT competitive advantages, and are further supported by an industry-leading balance sheet.”
Several other analysts have also updated their stock outlook. Cowen and company raised the target price to $192 from $189. Piper Sandler lifted the price objective to $183 from $174. Wedbush upped the target price to $185 from $170. Guggenheim increased the target price to $195 from $180. Truist Securities raised the target price to $196 from $190.
Technical analysis suggests it is good to buy now as 150-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.
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