Nike’s (NKE) shift from a wholesaler to a direct-to-consumer brand is spurring its next phase of margin-accretive revenue growth, , Morgan Stanley said in a Friday note.
The company is also poised to benefit from growing demand for comfortable activewear due to work-from-home preferences and focus on health and wellness.
Nike’s “strategic portfolio decisions, tech investments, and supply chain innovation also create (long-term) competitive advantages, and are further supported by an industry-leading balance sheet,” it said.
The company, however, is unlikely to deliver on its long-term growth and profitability targets until fiscal Q4, Morgan Stanley said.
Nike’s fiscal Q2 revenue could miss expectations given ongoing softness in the wholesale business that has also resulted in lower-than-expected quarterly sales by many branded peers, unexpected weather-related headwinds in the EMEA region and a challenging global macro environment, it said.
While the company is expected to maintain full-year profitability and earnings guidance, “we’re braced for a lower topline outlook, similar to branded peers,” Morgan Stanley said.
Morgan Stanley raised the target price to $132 from $126, and maintained its overweight rating on the stock.