MW The bar is finally low enough for Nike, analyst says. These big events could help the stock this year
By Bill Peters
'Nike has historically benefited from the newness and marketing around the Olympics, and we see this year as no different,' BofA analysts say
Over the past two years, Nike Inc. has dealt with slowing demand and a lack of new sneakers and other gear to revive it. But for analysts at BofA, acknowledging the problem has been part of the solution. And as Wall Street tempers its profit expectations, they say the bar for the athletic-gear maker might finally be low enough to actually clear.
BofA analysts Lorraine Hutchinson and Christopher Nardone upgraded shares of Nike $(NKE)$ to buy from neutral on Thursday. While they said a bigger turnaround could still take time, efforts to lure back customers by shaking up its product assortment, along with a potential boost from events like the Summer Olympics, would benefit the company.
The analysts also nudged their price target higher, to $113 from $110.
Shares rose 2.5% on Thursday. However, the stock was still down 34.9% over the past 12 months.
"We have been Neutral on the stock for several years, as our concerns around the recovery in China and elevated expectations offset our view of a strong brand," the BofA analysts said in a research note on Thursday. "One of the key changes of late has been management's acknowledgement of the lack of innovation. To fix it, management restructured and reorganized and will focus on newness."
The BofA analysts also said that earnings-per-share estimates for Nike's fiscal 2025 have fallen 35% over the past two years. But in the process, those estimates "finally look achievable," the analysts said.
Demand for shoes and clothes has suffered as prices for more crucial things, like groceries, stay high. Nike in December said it would try to cut up to $2 billion in costs over the next three years, and cited a "softer" sales outlook. It has tried to expand its Jordan brand, focus on female customers and push new products that use its Air cushioning technology.
But at least one analyst has said Nike's newer products haven't always resonated with customers. It faces competition from Deckers Outdoor Corp.'s $(DECK)$ Hoka sneakers and offerings from On Running $(ONON)$. While Nike over the past several years has tried to sell more products directly, as opposed to selling through other retail stores, its digital business has struggled. And last month, it said it would put more work into making its selections more attractive at physical stores.
Still, among the things Nike's stock has going for it are the summer Olympics in Paris and its first investor day in seven years this fall, the BofA analysts said.
"Nike has historically benefited from the newness and marketing around the Olympics, and we see this year as no different," they said.
"Nike has ramped innovation ahead of the event, and we model accelerating demand creation spending to generate excitement," the analysts continued. "Innovation has lagged in recent years, and new product development and launches are key to the return to growth."
Still, they said that any rebound for Nike could take a while to play out. And they said as Nike expanded the Jordan brand - it wants to sell more than just basketball sneakers - they would need to take care not to damage its appeal.
"Competition has been fierce, with innovative brands taking share and struggling brands promoting," the analysts said. "Nike needs to launch compelling innovation to battle these factors and has committed to faster and more meaningful product launches."
-Bill Peters
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April 11, 2024 13:54 ET (17:54 GMT)
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