Nike (NKE) sentiment may be overly optimistic heading into its fiscal third-quarter results with checks suggesting the March 21 report will underscore lackluster fundamentals, according to UBS.
The sports apparel retailer will likely post results that are downbeat but within expectations and leave its fiscal 2024 guidance unchanged, analysts Jay Sole, Tiffany Agard and Mauricio Serna wrote in a Tuesday note. UBS reiterated a buy rating and $138 price target on the stock.
“The market is looking for an inflection in Nike’s sales growth trend, but probably won’t get one,” they wrote, adding that they see a balanced upside/downside skew over the event. Industry data show a sequential low-double-digit percentage decline in global web traffic to Nike.com during the quarter, according to the brokerage’s report.
UBS reiterated its per-share earnings target of $0.78 for the third quarter but reduced its fourth-quarter estimate to $0.79 from a prior view of $0.83. Consensus estimates compiled by Capital IQ show analysts, on average, are modeling third- and fourth-quarter normalized EPS of $0.76 and $0.88, respectively.
“The upside risk is Nike’s margins look better than expected,” the analysts said. “The downside risk is sales fall short of expectations and sentiment is more bullish than investors realize.”
Nike’s stock is “long-crowded,” according to UBS, with data from its Quant Team assigning Nike a crowding score of 27, elevated from Nike’s 19.2 five-year average.
“This matches what we hear in conversations with investors,” the analysts said. “The market knows Nike has struggled recently, yet is looking at the stock as a long on the ‘exceptional company trading at a relative discount’ thesis.”
While Nike’s stock has underperformed the S&P 500 year to date, “sentiment still has room to fall,” the analysts wrote.