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Nike’s better-than-expected third-quarter results point to the strength of the athletic giant’s brand, analysts say, despite the company’s weaker-than-expected gross-margin forecast.
On Wednesday, Barclays upgraded Nike Inc.
NKE,
to overweight from equal weight and raised its price target to $154 from $110. Nike’s top- and bottom-line beat is evidence of broad-based brand strength, in spite of a weakening consumer macroeconomic backdrop, according to Barclays analyst Adrienne Yih. “Sales upside was across both [direct-to-consumer] and wholesale and all geographies led by [North America], except China,” she said.
UBS also raised its Nike price target, to $155 from $151. “Solid quarter causes us to reiterate our buy rating,” wrote UBS analyst Jay Sole on Wednesday, noting that the price target implies a 23% upside from the company’s current share price.
UBS has a buy rating for Nike.
Related: Nike’s stock turns lower as enduring costs, markdowns weigh on margins
Nike’s stock fell 1.4% Wednesday, weighed down the company’s gross-margin forecast. The stock has risen 5.8% in 2023, outpacing the S&P 500’s
SPX,
gain of 4.3%.
Raymond James raised its Nike price target to $135 from $130 Wednesday. “Strength was once again broad-based across channels and most [geographies],” analyst Rick Patel wrote. “China revenue missed expectations, but strengthened intra-[fiscal third quarter],” he added.
Buoyed by the third-quarter numbers, Nike’s management raised its full-year sales forecast to a percentage gain in the “high single digits,” up from a prior outlook for “mid-single-digit” gain.
But markdowns weighed on the company’s margins, with Nike’s gross-margin forecast for the full year at the low end of expectations.
Raymond James’ Patel said that Nike is “taking the markdown medicine now” for healthy inventory in fiscal year 2024. “To right-size inventory, we view Nike as taking its medicine, which is hurting [gross-margin percentage],” he wrote. However, he noted, this is also driving growth in both direct and wholesale, which “should allow inventory to be healthy exiting [fiscal year 2023].”
Jefferies raised its Nike price target to $160 from $140 Wednesday and reiterated its buy rating. “We believe consumer demand remains healthy, driving ample growth potential ahead,” wrote Jefferies analyst Randal Konik. “With guidance revised upward and margin recapture ahead, we recommend purchasing [Nike] shares (and selling [Lululemon]
LULU,
),” he added.
Of 37 analysts surveyed by FactSet, 24 have an overweight or buy rating, 11 have a hold rating and two have an underweight or sell rating for Nike.
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