Nike Stock Looks Compelling, BofA Says. It's Had a Rough Run. -- Barrons.com

Karishma Vanjani

Nike's stock has fallen on hard times. Don't expect it to stay behind the pack for long.

Wall Street's expectations finally look achievable, according to BofA Global Research's Lorraine Hutchinson. She upgraded her rating on the athletic apparel maker's stock to Buy on Thursday from Neutral for the first time in several years.

The analyst's new price target of $113 for the stock implies a 27% upside from the latest closing price. Her previous price target was $110.

"We are upgrading NKE to Buy as [profit] estimates finally look achievable," Hutchinson wrote. "Relative valuation [is] extremely compelling" as well, she added.

Nike's stock had a tough run so far, down 16% for the year. It's among the biggest losers in the Dow Jones Industrial Average, falling behind only Intel and Boeing.

Nike has had its own set of issues. Management, last month, warned of softening sales this year as consumers from Europe to China pull back their spending. Sales were practically flat in the latest quarter compared with a year ago. Inflated inventory levels had forced the company to offer deep discounts to clear its warehouse last year, though the levels have somewhat normalized now.

Competition from brands such as Deckers Outdoor's Hoka and On Holding over the past few years hasn't been good news for Nike, either.

The upshot? Over the past two years, Wall Street analysts have lowered their projections for profit by 35% for the current fiscal year ending in May and nearly halved it for the fiscal year ending in May 2025.

Nike's stock is now relatively cheap. The stock trades at 22.7 times its next 12-months earnings per share estimate versus its own five-year average of 31.6 times.

Nike's Investor Day this fall, the first in seven years, and the newness and marketing around the Olympics, are catalysts that can help the stock as well, the analyst said. Nike unveiled its newest shoes in four separate news releases this morning.

Investors are also pinning hopes on the recently announced multiyear cost savings plan to help boost sales.

Nike's stock was up 3% at $91.72 at midday on Thursday, while the Dow Jones Industrial Average was down 0.3%. Nike was a Barron's stock pick in August last year, when it traded at $107.51.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

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April 11, 2024 12:43 ET (16:43 GMT)

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