Nike’s stock hasn’t been a winning bet for the better part of the past three years. One analyst thinks the company’s losing streak could soon be coming to an end as product innovation ramps up.
Oppenheimer analyst Brian Nagel upgraded Nike shares to Outperform from Perform Friday, and lifted his price target to $120 from $110. Nagel also reinstated Nike as a top megacap pick across his coverage.
Nike shares are 11% lower this year, and have shed 38% over the past three years. There are a lot of reasons investors have been downbeat on the stock, including slower sales growth in China, a sluggish innovation cycle, rising competition, and cooling consumer spending in the U.S.
Those challenges persist for Nike, Nagel acknowledged, but he believes the company’s turnaround efforts will start panning out in the next few quarters. And with shares trading at a roughly 25% discount to their historical average, the market has largely priced these in, he added.
“We are increasingly of the view that multiples at which shares trade and nearer-term financial expectations for NKE are now largely ‘derisked’ and poised to rebound gradually, as efforts on the part of senior leadership to refocus on product innovation and brand-building take hold,” Nagel wrote in a Friday note to clients.
Barron’s made a similar argument when we named Nike a stock pick Friday. We noted that Nike’s ramped up innovation and marketing initiatives will be on full display during the 2024 Olympics in Paris — which could kick-start the Nike turnaround.
Nagel says the Olympics will be a “key branding event” for Nike that will help it gain back market share from competitors such as On Holding or Deckers Outdoor’s Hoka brand.
The analyst is also bullish on management’s cost-cutting efforts and plans to reallocate spending for better return on investment.
That said, investors shouldn’t expect much from Nike’s fiscal fourth-quarter results, due June 27, Nagel cautioned. Management is likely to issue lackluster guidance for fiscal 2025 as it works through the last bumps in the road.
Yet he believes this may be the “last bad” report from Nike, and that a guide-down will position Nike for improving results and potential upside in the second half of the fiscal year.
Nike stock ticked up 0.6% to $96.16 in midmorning trading Friday.
Write to Sabrina Escobar at sabrina.escobar@barrons.com