Nike's Rating Lowered as Analyst Cautions Soft Macro Will Pressure Results

Piper Sandler's Abbie Zvejnieks lowered their price target on Nike (NYSE: NKE) by 4.5% from $112 to $107 on 2023/12/22. The analyst maintained their Hold rating on the stock.

Zvejnieks' update came after assessing Nike's Q2 2023 earnings report and participation in the earnings call, which revealed a "positive shift" at the company. According to the analyst, Nike is placing more emphasis on its products rather than technology, as the company believes that products will be the key driver of demand going forward.

However, Zvejnieks also expressed concerns about the impact of a soft macro environment on Nike's results. The analyst believes that this macroeconomic weakness will continue to put pressure on the company's performance in the future.

Due to the uncertainty surrounding when a new product will make a difference, Piper Sandler will remain "sidelined" for the time being, Zvejnieks cautioned.

In the Q2 2024 earnings report, Nike reported earnings per share (EPS) of $1.03, exceeding the Zacks Consensus Estimate of $0.84 by 21.2% and surpassing the $0.85 EPS recorded in Q2 2023. The company's revenue for the quarter stood at $13.388 billion, slightly missing the Zacks Consensus Estimate of $13.395 billion but representing a 0.05% increase from Q2 2023's $13.315 billion.

Nike's gross profit for Q2 2024 reached $5.971 billion, demonstrating a 5% year-over-year growth. The company also reported a gross margin of 44.6%, which expanded by 170 basis points. Additionally, Nike paid out $523 million in dividends during the quarter and repurchased shares at a cost of $1.2 billion.

Looking ahead, Nike anticipates a slight decline in revenue growth for Q3 2024 compared to the double-digit growth experienced in Q3 2023. However, the company expects a gross margin expansion of 160 to 180 basis points during the same period.

For Q4 2024, Nike projects revenue growth in the low-single digits and a gross margin expansion of 225 to 250 basis points. The company's forecast for FY 2024 includes a 1% increase in revenue growth, down from the previously guided mid-single digits growth. Nike also expects a gross margin expansion of 140 to 160 basis points.

Commenting on the Q2 results, Nike's President and CEO, John Donahoe, highlighted the company's focus on innovation and growth, stating that they are "getting back on our front foot" in those areas. CFO Matthew Friend emphasized the importance of strong gross margin execution and disciplined cost management in driving more profitable growth.

In addition to Piper Sandler's update, several other analysts also adjusted their ratings and price targets for Nike on December 22, 2023. TD Cowen's John Kernan lowered their price target by 19.4% from $129 to $104 and downgraded the stock from a Buy rating to a Hold. Truist Securities' Beth Reed lowered their price target by 0.9% from $108 to $107 and maintained a Hold rating. JP Morgan's Matthew Korn reduced the price target by 7.9% from $139 to $128 but maintained a Strong Buy rating.

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

The consensus forecast among analysts is that Nike's upcoming fiscal year will deliver earnings per share (EPS) of $3.8. If the analysts' predictions hold true, 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%. On a year-over-year basis, the stock is down 7.4%. During the same period, Nike has underperformed the S&P 500, which has experienced a 24.4% decline.

Abbie Zvejnieks, the Piper Sandler analyst who updated the rating on Nike, is ranked in the top 16% of Wall Street analysts by WallStreetZen. With an average return of 19.4% and a 70% win rate, Zvejnieks specializes in the Consumer Cyclical sector.

Nike, Inc. is a global company that sells athletic footwear, apparel, equipment, and accessories both in the U.S. and internationally. The company, founded in 1964, is headquartered in Beaverton, Oregon.

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