NIKE, Inc. (NYSE: NKE) is back! After losing more than half of its value since the end of 2021, NIKE shares have now risen more than 20% since earnings just the prior week. And at $73.00 and with the S&P 500 bumping against all-time highs, Nike’s stock would have to rise 25% just to hit a 52-week high — and its stock would have to rise nearly 150% before challenging its all-time highs.
Strategic investors now have to decide if Nike is finally proving itself as a value and turnaround stock or if the recent good news from earnings was just a blip. If the latter proves to be true, then it will have just been yet another head fake.
THE PROS & CONS LOOKING AHEAD
Wall Street believes that there is more good news to come after the earnings reports. Oggonomics has tracked multiple price target hikes from Wall Street analysts, and some of the analysts are issuing formal upgrades as well.
The momentum has shifted in Nike’s favor. Tariffs now appear to be manageable and partially fixed (partially). The company is set to be refocused on sports, and its guidance was better than expected despite a revenue drop from last year. And Wall Street is ready to back Elliott Hill as Nike’s new CEO with less of an expected sales decline than what has already been seen.
Some investors may consider Nike as a value stock because its share price was so battered. The problem with a “value” classification is that Nike doesn’t exactly scream “value” at 29-times next year’s consensus earnings estimates of about $2.50 per share (and under $2.00 EPS this year). Using Nike’s peak earnings of $3.75 per share (2022) would generate about 20-times earnings at the current share price, but there is a long way to go before investors should expect peak earnings again from Nike.
Investors need to consider just how pessimistic Wall Street was heading into the earnings report. The stock was under $60 and it was like there was a race among analysts to lower expectations. Even as some analysts still had Buy or Outperform ratings, these were the price target cuts from June that were issued in just the 10 trading days before earnings:
- Target cut to $53 from $60 at Barclays
- Target cut to $71 from $77 at Deutsche Bank
- Target cut to $75 from $97 Evercore ISI
- Target cut to $61 from $70 at Morgan Stanley
- Target cut to $66 from $75 at Needham
- Target cut to $73 from $82 at Truist Securities
Now jump forward to the more recent days after the better-than-expected earnings and forecast. Most of those analysts and other analysts have since reversed course and issued higher price targets. What this means is that Nike caught Wall Street off guard. It happens sometimes, particularly after a company flounders for so long that everyone forgets that things used to be great.
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WALL STREET JUST REVERSED TO POSITIVE
Wall Street has used the days since the earnings report to become much more positive on Nike. Here are the new price targets and ratings after that report:
- Argus raised to Buy from Hold, with a $85 price target.
- Barclays maintained Equal-Weight, target still raised to $64 from $53.
- BofA reiterated as Buy, price objective raised to $84 from $80.
- Citi maintained Neutral, target still raised to $68 from $57.
- Evercore ISI reiterated outperform, target raised to $90 from $75.
- Goldman Sachs reiterated Buy, target raised to $81 from $72.
- HSBC raised Nike to Buy from Hold with a $80 price target.
- JPMorgan maintained Neutral, target still raised to $64 from $56.
- Morgan Stanley maintained Equal-Weight, target still raised to $64 from $61.
- Needham reiterated Buy, target raised to $78 from $66.
- Piper Sandler reiterated Overweight, target raised to $80 from $70.
- RW Baird reiterated Outperform, target raised to $88 from $80.
- Truist Securities reiterated Buy, target raised to $85 from $73.
Perhaps the biggest issue here is that Wall Street was behind the curve. For analysts to cut price targets after many other price target cuts, some turnaround investors may be inclined to believe that this could just be the start of the analyst upgrade cycle and that price targets could even end up going much higher.
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DISCLAIMERS
Please be informed that all analyst ratings and price targets mentioned above were issued by each firm named in this summary. Their ratings and targets show significant differences in ratings and in price targets.
Investors need to keep in mind that no single analyst report, or even a group of reports, should be the sole basis used to buy or sell a stock. Analysts sometimes get their thesis and outlook wrong. And sometimes the fundamentals of a company, its sector or the economy as a whole can change in an instant.
Oggonomics does not issue any formal ratings and does not maintain any price targets of its own in Nike. Interpretations of analyst calls vary from investor to investor.
No analyst ratings and their price targets, even those with the strongest conviction or strongest pessimism, ever come with any guarantees of profits. Analysts reports also never have money-back guarantees in the event that investors lose money.
