On Friday, Piper Sandler initiated coverage on Nike Inc (NYSE:NYSE:NKE) stock with a Neutral rating and set a price target of $80.00. The coverage begins amidst a period where Nike is expected to reduce its inventory of key classic franchises, which includes popular lines such as Airforce 1, Dunks, and AJ1.
These products are estimated to represent 15% of Nike's footwear stock keeping units (SKUs) and approximately a third of its footwear sales, or 20% of total sales.
The firm noted that Nike is likely to undergo a multi-year reset to achieve healthy sales growth rates, a process that may extend beyond the timeline suggested by the company's fiscal year 2025 guidance.
This adjustment period comes as Nike faces stiff competition from brands like On Running and HOKA, a resurgence of Adidas (OTC:ADDYY) in the lifestyle segment, and economic challenges in the Chinese market.
Piper Sandler's analysis also highlighted concerns over the feasibility of Nike's financial guidance for the second half of fiscal year 2025. After projecting a significant decline in the first half, the company expects a recovery to flat or slightly increased sales in the latter half.
However, Piper Sandler's estimates for Nike's earnings per share (EPS) for fiscal years 2025 and 2026 are 8% below the consensus, at $2.90 and $3.08 respectively.
Despite recent share price increases of around 13% from their lows, Nike's stock is trading at approximately 25 times price-to-earnings (P/E), which is only marginally below its five-year average of 26-27 times.
The firm also pointed out that with 22 million shares shorted, sentiment toward Nike, typically a staple in consumer investment portfolios, is at a notably low point.
This sentiment follows a pattern of sell-side downgrades after Nike's fourth fiscal quarter 2024 earnings report. Piper Sandler mentioned potential upcoming catalysts, including possible management changes and an investor day scheduled for November.
In other recent news, Nike Inc. has been the subject of several key developments. The company received an upgrade from Williams Trading, moving its stock rating from Sell to Buy. This change coincided with an increase in Nike's price target, now set at $93.00, up from the previous $67.00.
This upgrade follows the reinstatement of Tom Peddie as Vice President of Marketplace Partners, a move that has reportedly been well-received by Nike's wholesale partners.
In addition, billionaire investor William Ackman's Pershing Square (NYSE:SQ) Capital Management has re-entered as a shareholder, acquiring approximately 3 million shares. Analysts speculate that Ackman's presence may influence a strategic turnaround for Nike. Bernstein SocGen Group maintained an Outperform rating on Nike, observing improvements in the brand's performance metrics.
Nike is also experiencing workforce reductions, affecting less than 5% of its employees. The restructuring plan comes amid uncertain economic conditions. Despite these changes, Nike saw a surge in consumer interest and sales during the summer Olympics, with an uptick in visits to its direct-to-consumer websites, according to data from Similarweb (NYSE:SMWB).
InvestingPro Insights
As Piper Sandler initiates coverage on Nike Inc (NYSE:NKE), it's essential to consider the financial health and market position of the company. Nike's market capitalization stands at a robust $125.06 billion, reflecting its substantial presence in the industry. Moreover, the company's P/E ratio is currently at 22.22, indicating a premium valuation relative to its near-term earnings growth. This aligns with Piper Sandler's observation of the stock trading close to its five-year average P/E ratio.
An InvestingPro Tip highlights that Nike has raised its dividend for 22 consecutive years, underscoring its commitment to returning value to shareholders. Additionally, the company's strong return over the last month, with a 13.64% price total return, suggests a positive short-term momentum which may interest investors looking for recent performance cues.
For those seeking a deeper analysis, InvestingPro offers a range of tips, including insights into Nike's industry position, liquidity, and debt levels. In total, there are 11 more InvestingPro Tips available, which provide a broader understanding of Nike's financial nuances and market behavior. To explore these tips and gain a comprehensive investment perspective on Nike, visit https://www.investing.com/pro/NKE.
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