Nike Inc. (NYSE: NKE) stock saw a handy gain as the week came to a close, and as the pandemic begins to wane, one analyst is fairly positive on Nike’s prospects going forward. With the stock underperforming year to date and recent concerns (such as the supply chain and risks in China) likely to prove temporary, Baird is upgrading the stock.

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Nike was upgraded to Outperform from Neutral, and Baird maintained its price target at $150, which implies an upside of 17% from the most recent closing price of $128.64. Overall, the firm sees the current level as providing a more compelling entry, along with a favorable risk/reward, when looking over the next two or so years.

While part of Nike’s year-to-date underperformance likely reflects a rotation toward laggard, in Baird’s opinion, the fiscal third-quarter report highlighted short-term constraints on top of a new concern about Greater China arising this week following reports of potential government and consumer backlash for several western brands that have made statements regarding labor practices in the Xinjiang region. Again, Baird views these risks as likely temporary and at least partially reflected in Nike’s recent relative valuation compression.

The report also detailed:

Barring lasting impacts within China, we see EPS reaching $5/ share by F2024E and perhaps sooner, supported by favorable premium/full-priced selling, the accelerated shift to DTC/digital (+70% fiscal year-to-date; owned +partner digital mix seen reaching 50% long term), and related operating margin expansion (>15%). In a reasonable case ($5/share in F2024E, low-to-mid 30X P/E) we see +mid-teens annual returns with limited downside ($110-115/share assuming mid-to-high 20X P/E on F2024E of $4.25) and upside to $200+ in a bullcase (mid-to-high 30X P/E on F2024E approaching $5.50).

Aside from additional short-term China headline risks, Baird sees prospects of being one to two quarters early if incremental buyers stay sidelined ahead of cycling high COVID-19-aided digital growth and Nike’s initial fiscal 2022 guidance expected in June since consensus expectations already look quite bullish

Nike stock traded up about 3% to $132.38 on Friday, in a 52-week range of $77.16 to $147.95. The consensus price target is $165.15.

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