On Monday, Evercore ISI adjusted its outlook on Nike Inc (NYSE:NKE), reducing the price target to $110 from the previous $117, while keeping an Outperform rating on the stock.
The firm's revised forecast anticipates a challenging environment for the sportswear giant, with tougher trends observed since Nike's update on March 21. The analysis by Evercore ISI indicates mixed results from Nike's key product launches in the fourth fiscal quarter and potential order cancellations for Fall 2024, leading to expectations that Nike might lower its first half fiscal 2025 revenue guidance.
The revised revenue estimate for the first half of fiscal 2025 is now at a 4% year-over-year decline, compared to the prior estimate of a 1% decrease, which is more pessimistic than the Street's expectation of a 1.5% decline.
Despite these challenges, Evercore ISI sees a significant turnaround for Nike on the horizon. The firm believes that while there may be disappointment if Nike has to adjust its fiscal 2025 outlook downward, the potential for a strong recovery makes the stock an attractive investment, especially as it trades below the 10-year average price-to-earnings ratio.
Evercore ISI notes that Nike's stock price has stabilized, suggesting that the market may be anticipating further adjustments to the company's fiscal 2025 earnings per share (EPS) projections, which are currently below the consensus of $3.95.
According to Evercore ISI's extensive channel work, Nike is proactively managing its inventory and making investments for growth, supported by a substantial $2 billion in cost savings. The firm also highlights that even Nike's most critical retailers have expressed confidence in the company's innovation pipeline for 2025.
In light of these observations, Evercore ISI has lowered its fiscal 2025 EPS estimate for Nike to $3.60, down from the previous $3.90 estimate, noting that this is also below the consensus figure.
The firm underscores Nike's transparent approach to its turnaround strategies since the December call and suggests that most of the negative news may already be factored into the current stock price. Evercore ISI's analysis concludes that Nike is taking aggressive steps to position itself for a meaningful turnaround in calendar year 2025.
In other recent news, Nike Inc. has been a focus of analysts' attention. Morgan Stanley (NYSE:MS) reduced its price target for Nike to $114, citing concerns about its Q1 guidance. The firm expects Nike's fourth-quarter results to align with expectations, but predicts the first quarter and full-year guidance to be slightly below consensus estimates.
Meanwhile, Deutsche Bank (ETR:DBKGn) set a price target of $115 for Nike, highlighting the company's innovation strategy as a potential driver of increased sales growth and market share expansion.
In contrast, Wells Fargo (NYSE:WFC) revised its price target for Nike down to $115 due to concerns about Nike's direct-to-consumer sales and supplier issues. The bank anticipates declines in revenue of 5%, 4%, and 1% for the first quarter, second quarter, and full fiscal year of 2025, respectively. Despite these revisions, all three firms maintained a positive outlook on the company.
In other company news, Nike announced a quarterly cash dividend of $0.37 per share and launched a significant innovation in athletic footwear with its first sculpted, visible Air Zoom (NASDAQ:ZM) unit in the Pegasus Premium running shoe.
Additionally, Nike is among the companies initiating workforce reductions at the start of 2024 as part of widespread cost-saving measures. These are the recent developments shaping the current landscape for Nike, Inc.
InvestingPro Insights
Amid the challenges faced by Nike Inc (NYSE:NKE), the company's long-standing commitment to shareholder returns is evident through its impressive track record of raising dividends for 22 consecutive years and maintaining dividend payments for 41 consecutive years, as highlighted by InvestingPro Tips. This consistency in shareholder value is coupled with a robust financial position where Nike's liquid assets surpass short-term obligations, and its cash flows can comfortably cover interest payments. These factors reflect a stable foundation even as the company navigates through the current market environment.
From a valuation perspective, Nike's market capitalization stands at $140.96 billion, and it currently trades at a price-to-earnings (P/E) ratio of 27.33. While the company is trading near its 52-week low, it is also operating with a moderate level of debt, which suggests a balanced approach to leveraging growth opportunities against financial prudence. Moreover, Nike's gross profit margin remains strong at 44.3%, demonstrating the company's ability to maintain profitability in its operations.
For investors considering Nike's potential for a turnaround, these insights offer a glimpse into the company's financial health and market positioning. For a deeper dive into Nike's financials and additional InvestingPro Tips, which include analysis on trading multiples and profitability forecasts, users can take advantage of the special offer by using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With more than 10 additional tips available on InvestingPro, investors can gain a comprehensive understanding of Nike's investment profile.
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