By Teresa Rivas
Investors have gotten a lot more mileage out of On Holding's stock this year than Nike. That might not change soon.
Both On Holdings and Nike were on the receiving end of positive reports beginning coverage of the stocks on Friday, but in the case of On, it was the second such note this week. It isn't surprising that there might be more enthusiasm for the stock.
Needham analyst Tom Nikic began covering a number of footwear names. He rates On and Nike at Buy, with price targets of $64 and $84, respectively, comfortably above their Thursday closing levels of $56.19 and $75.10.
For Nike, the "one-time darling of investors has clearly been off their game in recent years, but we believe that the worst may nearly be over," he wrote. He cited a new CEO, the well-respected company veteran Elliott Hill, as a positive factor, even if there is still hard work ahead for management.
"Admittedly, it will take time to rebuild the brand's lost momentum, but we believe Nike has the potential to be a compelling "story stock" in 2025, especially if numbers have bottomed and investors latch on to Mr. Hill as Nike's proverbial white knight," Nikic wrote.
On, he said, has been one of the strongest companies he covers, with rising margins and sales growth that leads its industry. "We believe the company has a continued runway for strong growth, as they increase brand awareness and gain shelf space with the biggest and best sneaker retailers in the world," making a lofty valuation worth the price. "Shares can continue to exhibit momentum as long as fundamentals remain intact, and we're choosing to ride the momentum."
Nikic has company in that. On Thursday, Raymond James analyst Rick Patel raised his rating on On to Strong Buy from Outperform, increasing his stock-price target to $63 from $58.
He said On's performance this year has given him confidence that the brand is expanding its audience and resonating with consumers, and that he expects gross margins to expand further thanks to On's successful direct-to-consumer sales.
"ON's premium branding and low exposure to China sourcing also help insulate it from tariff risk better than peers," Patel wrote.
Shares of On have more than doubled in the past year to a recent $57. Fourteen months ago, Barron's highlighted On as a company going places because it has a rapidly expanding base of fans who are often willing to pay full price.
A less successful call was Barron's view that Nike stock had hit bottom over the summer: We were wrong, given the shares have fallen from $95 then to a recent $77. And while management changes are encouraging, Nike remains a show-me story as a result of increasing competition from rivals like On and Deckers Outdoors' Hoka brands and continuing weakness in China's economy.
The situation on the technical side looks similar. On Friday, Piper Sandler's chief market technician, Craig Johnson, warned that Nike shares have broken to the downside and could soon retest their August lows around $70 a share.
He is more upbeat about On, arguing investors should add to positions when the stock slips because its relative strength, a metric that incorporates momentum and price direction, has turned higher.
While Nike and On were trading neck and neck on Friday afternoon with gains of 2.7%, On looks like the better choice for investors interested in the marathon, not the sprint.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 22, 2024 13:40 ET (18:40 GMT)
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