BMO Capital says it would be overly optimistic to suggest that the worst is behind for Nike
Shares of Nike (NKE) are on the rise on Wednesday after the sneaker maker reported better than expected third quarter revenue, helped by a surge in China digital sales. Following the news, several Wall Street analysts raised their price targets on the stock, with Piper Sandler analyst Erinn Murphy saying the company's "power of digital" shined in its fiscal third quarter results amid the COVID-19 outbreak.
RESULTS: Nike reported third quarter earnings per share of 53c, with consensus at 59c, and third quarter revenue of $10.1B, which was above consensus of $9.8B. Revenues in the third quarter were up 5% on a reported basis and up 7% on a currency-neutral basis, driven by 13% currency-neutral growth in NIKE Direct with digital growth of 36% and strong growth across EMEA, APLA and North America, offset by the impact of COVID-19 on the company's business in Greater China. Digital sales in Greater China increased more than 30% while brick and mortar retail sales were impacted by temporary store closures related to COVID-19, the company noted.
The company also said that, "At the peak in February, roughly 75% of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80% of doors are open in Greater China with an even higher rate in key cities. Beginning March 16th, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19."
TARGETS UPPED ON 'SOLID' RESULTS: In a post-earnings research note, Cowen analyst John Kernan raised the firm's price target on Nike to $85 from $75 citing the company's “solid” first quarter results. The analyst noted that the company said China revenues were only down roughly 4%, which he sees as "incredible" and as evidence of the brand's ability to manage through macro dislocation. Kernan reiterated his Outperform rating on Nike shares.
Piper Sandler analyst Erinn Murphy also raised her price target for Nike to $94 from $82, while keeping an Overweight rating on the shares. The company's "power of digital" shined in its fiscal third quarter results amid the COVID-19 outbreak, Murphy told investors. Importantly, the analyst highlighted that Nike is seeing improvement in its business in China month-to-date, fueled by digital.
Meanwhile, JPMorgan analyst Matthew Boss raised the firm's price target on Nike to $91 from $75 as the company’s constant currency revenue growth in fiscal third quarter materially exceeded his model and consensus with 7% underlying North America growth. He kept an Overweight rating on the shares. His peer at Deutsche Bank raised the firm's price target on Nike to $84 from $80 saying that the company "flexed its muscles this quarter." Deutsche analyst Paul Trussell has a Hold rating on Nike shares.
Credit Suisse analyst Michael Binetti also raised his price target for Nike to $92 from $85, while Barclays analyst Adrienne Yih increased the target to $92 from $91. Both have a Buy-equivalent rating on the stock.
WORST MIGHT NOT BE OVER YET: While keeping an Outperform rating on the shares, BMO Capital analyst Simeon Siegel lowered his price target for Nike to $87 from $110 following the company's "better than feared" third quarter results. The analyst noted that it would be overly optimistic to suggest that the worst is behind and that he cannot call Nike shares cheap. However, he still expects the company to emerge "healthy" as its scale and liquidity will allow for market share gains amid greater distribution channel pressure.
Meanwhile, Raymond James analyst Matthew McClintock also lowered the firm's price target on Nike to $100 from $110, while maintaining an Outperform rating on the shares. Nonetheless, McClintock remains bullish on Nike, which he believes continues to demonstrate ample demand for strong, innovative product in the marketplace, despite the COVID-19 challenge.
PRICE ACTION: In late morning trading shares of Nike have gained almost 11% to $80.16.