Key points
- Nike shares have been under pressure since December, frustrating investors.
- At first glance last night’s report looked good, but stocks were lower in Friday’s pre-market session.
- Several heavyweight analysts have reiterated their buy ratings however, so this could be a solid entry opportunity.
- 5 stocks we like more than NIKE
With Nike Inc NYSE:DI After shares have traded noticeably weaker than the broader stock market in recent weeks, they needed to deliver a strong earnings report last night. At first glance, it looked like they had managed to do just that.
The sportswear giant beat analysts’ expectations in both revenue and earnings per share, the latter 30% higher than consensus. Exceeding expectations for key numbers is almost always a prerequisite for any stock looking to recover after an earnings report, but the devil can often be in the details.
Fundamental performance for Nike stock
Nike reported after the bell rang to end Thursday’s session, and it didn’t take long for their shares to jump in after-hours trading as Wall Street dug deeper. Overall, things looked positive. The company’s gross margins rose, inventories fell, and the stock had no problem rising above 5%. Considering the fact that Nike has been trending lower since the December report, this was exactly the kind of response investors were hoping for.
It must have been a frustrating stock to own in recent months, as the broader market hit several record highs, while Nike found itself down as much as 20% from its December high. However, in pre-market trading on Friday, Thursday night’s gains had all been abandoned and then some. At the time of this writing, Nike shares were down 6% and at a new low for the year.
It appears that Wall Street has been particularly hard on the stock when it comes to the headwinds that have plagued it in recent months, particularly signs of weak consumer spending in China, always a key market, and a continued lack of innovation.
Bullish attitudes reiterated for Nike stock
Analysts at Bernstein, for example, maintained their Outperform rating on Nike shares after Thursday’s report, but significantly reduced their price target for the stock. Having previously had it at a bullish price of $134, they are now looking for Nike to get to $120. It is still aiming for a targeted upside of almost 30%, which, to be honest, is interesting for those of us on the sidelines. For existing investors, and especially those whose positions are in the red, a reduced price target isn’t exactly going to inspire confidence.
Bernstein’s team has criticized the company’s innovation efforts, but sees this as a challenge that will be addressed in the coming months. They are still positive about the company’s long-term potential and anticipate a return to what they call a “robust innovation cycle” that will drive new growth and positive share price appreciation.
Considering taking a stake in Nike stock
Their cautious but decidedly bullish stance is interesting, and Bernstein was hardly alone in that camp. This morning the teams at Goldman Sachs and UBS Group both reiterated their buy ratings on Nike shares, with price targets updated to $120 and $125, respectively. The fact that Nike stock will open lower and likely trend lower over the weekend, you have to think a buying opportunity is opening up here.
Make no mistake, the company continues to outperform expectations, and its stock remains attractive from a valuation perspective alone. We consider Nike’s price-to-earnings (PE) ratio to be 30 compared to its closest athleisure competitor, Lululemon Athletica Inc NASDAQ: LULU, For example. Lululemon earned a PE ratio of 60 above its earnings last night, and its shares are set to open even lower than Nike’s.
Investors should look for the stock not to fall below $90, as this would indicate that there is strong momentum from the bears and likely force many bulls to reconsider their position. However, if the stock shows signs of consolidation later this evening, or the early part of next week, things could get interesting pretty quickly.
Before you consider NIKE, you’ll want to hear this.
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