Companies and Brands

Why Wedbush Sees More Upside in Nike Ahead of Earnings

Chris Lange

Published: December 11, 2019 10:40 am

Last Updated: January 30, 2020 12:18 pm

Nike Inc. (NYSE: NKE) has been an outstanding Dow Jones industrial average component so far in 2019, despite its exposure to China. Even though trade talks are ongoing and nothing has been fully resolved yet, one analyst sees Nike’s outperformance continuing into 2020.

Wedbush reiterated an Outperform rating and raised its price target to $110 from $100, implying an upside of 13% from the most recent closing price of $97.01. The boutique brokerage firm expects Nike to raise its guidance for fiscal 2020 when it reports earnings next week.

In the report, Wedbush noted that highlights and potential upside drivers for the quarter include continued robust growth in China, with EMEA benefiting from late first-quarter launch of the Nike App, and North America from a prolonged back-to-school season. These factors should help drive per-share earnings of $0.59, compared with the consensus of $0.58.

The firm further detailed:

Our estimates for FY20/21 are being raised mostly on sales & gross margin upside from China, EMEA, & digital and a modestly improved FX dynamic. Importantly, there remain numerous areas of upside opportunity in FY20 & beyond, including: the Nike App in China, Nike Fit, RFID and other productivity strategies, clean/seasonable inventory, a robust product pipeline, and more. In the end, Nike’s merchandise, marketing, & distribution strategies resonate with consumers globally as the company also drives industry innovation & adeptly creates or captures incremental opportunities for the future. Nike shares trade at 24x our FY22 EPS estimate, a 4% discount to their historic average.

Wedbush further suggests that sales should increase about 10% on a currency-neutral basis (7.9% on a reported basis with FX slightly lower than the guided 3% negative impact) driven by China, EMEA and North America.

Nike previously raised its fiscal 2020 outlook (including for both currency-neutral and reported sales), and management may slightly raise the guide again, given greater currency-neutral sales momentum, a more favorable gross margin, and a modestly improved FX dynamic.

Shares of Nike traded at $97.17 on Wednesday, in a 52-week range of $66.53 to $97.63. The consensus price target is $103.60.