JP Morgan Analyst Cuts Nike Price Target by 7.9% on Lowered Revenue Guidance

JP Morgan's Matthew Korn lowered their price target on Nike (NYSE: NKE) by 7.9% from $139 to $128 on 2023/12/22. The analyst maintained their Strong Buy rating on the stock.

After assessing Nike's Q2 2024 earnings report, Korn explained the rationale behind the price target cut. While the quarter represented a beat, management's lower revenue guidance for the second half of the year influenced the decision. The retail sales growth in Q2 fell short of expectations due to softer demand outside of key consumer moments, which offset industry outperformance during key catalyst periods.

In Q2 2024, Nike reported earnings per share (EPS) of $1.03, surpassing the Zacks Consensus Estimate of $0.84 and showing a 21.2% increase compared to Q2 2023's $0.85. Revenue came in at $13.388 billion, slightly missing the Zacks Consensus Estimate of $13.395 billion but still beating Q2 2023's $13.315 billion by 0.05%. The company saw a 5% year-over-year increase in gross profit, reaching $5.971 billion, with a gross margin expansion of 170 basis points to 44.6%. Nike also paid out $523 million in dividends during the quarter and repurchased shares at a cost of $1.2 billion.

Looking ahead, Nike provided guidance for Q3 and Q4 2024. For Q3, the company expects a slight decline in revenue growth compared to the double-digit growth seen in Q3 2023. However, they anticipate a gross margin expansion of 160 to 180 basis points. In Q4, Nike projects low-single-digit revenue growth and a gross margin expansion of 225 to 250 basis points. For the full fiscal year 2024, the company now forecasts a 1% revenue growth, down from the previously guided mid-single digits growth. They also expect a gross margin expansion of 140 to 160 basis points.

President and CEO John Donahoe commented on the Q2 results, highlighting the company's focus on innovation and growth. He stated, "The quarter showed strong execution by our team as we focus on our winning formula of innovative products, distinctive storytelling, and differentiated marketplace experiences." CFO Matthew Friend added that Nike's Q2 financial performance marked a turning point in driving more profitable growth, emphasizing their commitment to strong gross margin execution and disciplined cost management.

Following Korn's rating update, other analysts also adjusted their assessments of Nike on December 22, 2023. Piper Sandler's Abbie Zvejnieks lowered their price target by 4.5% from $112 to $107 but maintained a Hold rating on the stock. TD Cowen's John Kernan lowered their price target by 19.4% from $129 to $104 and downgraded their rating from Buy to Hold. Beth Reed of Truist Securities lowered their price target by 0.9% from $108 to $107 while also maintaining a Hold rating.

Currently, 82.4% of top-rated analysts rate Nike as a Strong Buy or Buy, while 17.6% see it as a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts suggests that Nike's upcoming year will deliver earnings per share (EPS) of $3.8. If the analysts' predictions are accurate, this would represent a 16% year-over-year increase.

Since Nike's latest quarterly report on December 21, 2023, the stock price has declined by 11.8%. Year-over-year, the stock is down 7.4%. During this period, Nike has underperformed the S&P 500, which has seen a decline of 24.4%.

Matthew Korn, the JP Morgan analyst who revised the price target, ranks in the top 27% out of 4,437 Wall Street analysts according to WallStreetZen. Korn specializes in sectors such as Healthcare and Communication Services.

Nike, Inc. is a global company that sells athletic footwear, apparel, equipment, and accessories both in the United States and internationally. In addition to its adult products, Nike also offers a range of products for kids. The company was founded in 1964 and is headquartered in Beaverton, Oregon.

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