Joe Raedle
Nike (NYSE: NO) understandably is attracting both positive and negative attention from analysts and research firms ahead of its third-quarter results on Tuesday.
While shares of the Oregon-based shoe giant are up more than 15% in the 6 months ahead of its earnings report, the stock is essentially flat so far in 2023.
According to Seeking Alpha surveys, analysts have frequently changed estimates since the end of 2022. According to the data, EPS expectations have been cut 21 times while revising revenue estimates upward at the same pace.
Foot traffic tracker Placer.ai said visits to Nike stores have pivoted in a positive direction to start 2023 in a report released the week before print. February visits to Nike and Nike Factory Stores increased 5.97%, building on an average double-digit jump in December and January, outpacing the Omicron-impacted start of the year through 2022. The increase in visits also reflected a sharp rebound of around a 5% drop in traffic in November 2022 compared to 2021.
However, the research noted that Nike has offered deep discounts in recent months to eliminate inventory, a factor that “likely contributed to the significant [year over year] visit the points. Ongoing promotional activity suggests margins could remain under pressure, in line with adjustments to analyst estimates.
Ahead of the results, the consensus estimate for EPS stands at $0.54, reflecting the expectation of a nearly 38% year-over-year decline. Revenue, meanwhile, is expected to rise about 5.6% to $11.48 billion. Nike has raised its EPS estimates for 8 consecutive quarters, missing revenue expectations only twice during that period.
For Tuesday’s report, Baird analyst Jonathan Komp expects a beat on the top and bottom results. He indicated that the stock remains “an attractive holding in the current environment”, especially if optimistic forecasts can be offered.
“With a moderate beat/rise likely already priced in, the initial commentary on the F2024E guidance should boost sentiment, and we potentially expect some revenue excess, but stronger margin/earnings recovery potential relative to consensus,” he told his clients. “Although we maintain conservative model projections, the positive momentum of the NKE brand, its high operating margin and its strong competitive positioning justify the current valuation in an uncertain operating environment.”
Komp maintained an outperform rating and $130 price target on the stock. He has maintained this vision of the clothing and footwear manufacturer since March 2021.
At the other end of the spectrum, Redburn believes the stock is bound to disappoint as a high valuation puts the stock in a precarious position. As such, the stock has been assigned a sell rating and a price target of $100, suggesting a notable decline over the coming year.
“Big brands aren’t always good stocks to own,” the company’s analysts advised.
The team noted that consensus expectations for sales growth “are based on a strong inflection in Greater China,” which they view as far from a certainty. The EBIT margin should also disappoint as a rebound takes longer to materialize than many analysts expect.
The Seeking Alpha Quant team also agrees with the valuation concerns cited by Redburn. According to the team’s analysis, high ratings for profitability are offset by an “F” rating for valuation and a D+ for growth. A Hold rating is recommended by the Quant team.
Learn more about the results slate for the week ahead.
