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Nike Fails Second Breakout Attempt

Dow component Nike Inc. (NKE) opened at an all-time high on Monday in sympathy with COVID recovery plays and sold off, failing a breakout above the September high near 130. The turnaround wasn’t a surprise because the failure of professional sports teams to fill stadiums has weighed on fourth quarter performance, even though NFL TV ratings have shown excellent resiliency compared to MLB and NBA misfires.

Professional Sports Weighing on Nike

The turnaround reinforces a holding pattern in place since September and the uncertain impact of the pandemic’s second wave this winter. Everyone hopes that 2021 soccer and baseball seasons proceed on schedule and the 2021 Tokyo Olympics gets off the ground but it could take more than a vaccine to get that accomplished. Even so, Nike is doing a great job building market share through direct e-commerce sales, which have underpinned revenue since the first quarter.

RBC analyst Kate Fitzsimons initiated Nike coverage with an ‘Outperform’ and $145 price target on Thursday, noting “We see NKE as a best-in-class global athletic play, with its Consumer Direct Acceleration strategies supporting a multi-year mid-high teens EPS CAGR through FY26. While shares at 35x earnings suggest that NKE’s strong fundamentals are well appreciated, we believe FY21/22 can see EPS upside as recovery from COVID-related disruption comes through faster and as gross margin comes in better.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 24 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $115 to a Street-high $165 while the stock opened Thursday’s U.S. session nearly $20 below the median $146 target. This placement should offer plenty of upside in reaction to news that brightens the light at the end of the pandemic tunnel.

The stock broke out above the first quarter high at 105.62 in August, triggering a rapid advance into the low 130s in September. October and November breakout attempts have now failed, adding to bearish weekly and monthly relative strength readings. Accumulation peaked in September and has posted two lower highs since that time, raising odds for a decline that fills the unfilled portion of Sept. 23 gap between 117 and 119.

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