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Nike is back in the game, and Wall Street couldn't be happier.
After two quarters of disappointing earnings growth - followed by Nike's first earnings miss in 7 years at the end of fiscal 2019 - the company had good news to report. It's first-quarter 2020 earnings handily beat even the most bullish Wall Street estimate.
Wall Street analysts went into a flurry after Nike's earnings. Between Tuesday and Wednesday, 22 of the 38 analysts that cover the stock released notes on the earnings performance, many that included price target and rating upgrades.
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Wall Street has remained bullish on Nike, even after two quarters of disappointing earnings amid an increasingly tough landscape for retailers. The bullish sentiment expanded after Tuesday's report. Of the 39 analysts that cover Nike, a majority of 24 have "buy" ratings on shares. Only 8 have hold ratings, and two analysts say to sell Nike.
Here's what Wall Street analysts are saying about Nike's record performance, and what it could mean for the retailer going forward.
1. Susquehanna: "Momentum across geographies, categories and channels remains exceptionally strong"
Price target: $106 from $100
Rating: Positive
"Buy NKE," wrote Sam Poser of Susquehanna in a note Wednesday. "Momentum across geographies, categories and channels remains exceptionally strong, despite macroeconomic headwinds (FX, tariffs, geopolitical tensions). While 1Q20 North America revenue growth was below Street estimates, growth is expected to accelerate through the balance of FY20."
"The 1Q20 results illuminate NKE's progress, and the FY20 guidance highlights the opportunities ahead. NKE is taking market share across channels, geographies, and categories driven by: 1) ongoing enhancements to digital platforms; 2) a robust product pipeline (footwear and apparel); and 3) scaling and accelerating speed-to-market capabilities. We expect the aforementioned initiatives to continue to drive top- and bottom-line growth for the foreseeable future."
2. Pivotal Research Group: "The EPS beat was due not only to the strong sales growth but also much-better-than-expected gross margin"
Price target: $104 from $101
Rating: Buy
"The EPS beat was due not only to the strong sales growth but also much-better-than-expected GM, albeit the GM upside was somewhat artificially inflated by a shift in supply chain investments from 1Q to 2Q. The company also reiterated its FY20 sales forecast, even as FX is now a bigger headwind," wrote Mitch Kummetz of Pivotal in a note to clients Wednesday.
"Going into this print, we were a little concerned that NKE would tick down its sales outlook for the year, based on greater FX headwinds. This obviously didn't happen, given a better CC outlook than before, which speaks to the strength of its underlying business. Going into this print, we also talked about NKE's relative strength, how it was taking share, which was the main reason for our bullishness on the stock."
3. Needham: The report "was evidence of the effectiveness of its strategy to double down on Direct, innovation, and speed-to-market"
Price target: $98 from $92
Rating: Buy
"Nike's sales and margin beat in the midst of a difficult 2Q backdrop for retailers and global brands was evidence of the effectiveness of its strategy to double down on Direct, innovation, and speed-to-market, in our view. Similar to recent quarters, innovative platforms drove >100% of incremental growth in F1Q."
"Looking ahead, Nike is planning for N. America sales growth in F2Q-F4Q to outpace its F1Q result. This reflects timing (Joyride launched late in F1Q20 versus more even product introductions in F1Q19) and the elongation of back-to-school season (which is benefiting September in F2Q.)"
4. Oppenheimer: "Very solid and suggestive of a still strengthening underlying business model"
Price target: $100
Rating: Outperform
"We look upon the better than expected Q1:20 (Aug.) results that Outperform-rated Nike (NKE) reported after the close last night as very solid and suggestive of a still strengthening underlying business model," wrote Oppenheimer's Brian Nagel in a note to clients
"Following last night's results and updated guidance, we adjust our financial model for NKE. Given the Q1 beat we are raising our FY20 (May 2020) EPS estimate to $3.00 from $2.88 previously. We are maintaining our FY21 (May 2021) earnings estimate of $3.42."
"Outsized sales growth in China implies clearly that the Nike brand is resonating well in new, high-growth markets. Better full-priced sell-through, enhanced by significant digitally driven innovation, is driving outsized margin expansion. We continue to recommend NKE as a top pick within our Consumer Growth & eCommerce coverage."
5. JPMorgan: "Tremendous current momentum"
Price target: $87.18
Rating: Overweight
In North America: +4% CC growth was "right on plan" including high-single-digit growth at differentiated retail citing "tremendous current momentum" and management expecting accelerating trends as the year progresses including an extended Back- to-School season 2Q-to-date," wrote Matthew Boss of JPMorgan in a note to clients Tuesday.
"On the top line, mgmt reaffirmed high-single-digit reported revenue growth slightly exceeding FY19's +7.5% despite increased FX headwinds importantly encompassing strengthening underlying business expectations on a constant currency basis. Below the top line, mgmt raised its full-year gross-margin expansion guidance to +50-75bps (> "potentially approaching 50bps" prior) despite guidance now including the impact of tariffs in 2Q-4Q w/ mgmt expecting the largest impact in 2Q."
"All in, we see upward Street EPS revisions to ~$3 (>$2.89 current consensus), marking an inflection in the FY20 downward EPS revision trend and abating elevated FX/tariff "numbers moving lower" fears into the print."
6. UBS: "Nike's Q1 could signal the beginning of a new period of stock price appreciation"
Price Target: $95 from $87
Rating: Neutral
"Before Nike's Q1 report, the company's stock price had increased only 1% over the LTM, in-line with the S&P 500's move. We think Nike's Q1 could signal the beginning of a new period of stock price appreciation," UBS analyst Jay Sole wrote in a Tuesday note.
Sole said that the decision not to upgrade the rating on the stock is due to "uncertainty around the magnitude of new opportunities."
"Nike is figuring out how to extend its brand image in authentic ways which is enabling it to gain new customers. Nike is further defining itself not just as a sports brand, but also a health & wellness brand. We think it's working. This comes at an opportune time given US prep sports involvement fell for the 1st time in 30 years."
7. Wedbush: "Numerous areas of upside"
Price target: $100 from $87.18
Rating: Outperform
"The FY20 CN and reported sales outlooks have both improved as gross margin should also see greater expansion than previously guided as well," wrote Christopher Svezia of Wedbush in a note to clients on Wednesday.
"There remains numerous areas of upside opp to both the 2Q and incrementally stronger FY20 outlooks, including: Nike App initiatives, Nike Fit, RFID and other productivity strategies, clean/seasonable inventory, a robust product pipeline, and more. In the end, Nike continues to expand the market and drive consumer industry innovation as there is upside to its CN sales outlook."
"Indeed, the outlook for the company is strong and there continues to be upside opportunity in FY20 on both underlying sales and gross margin, key ingredients to generate multiple and share price expansion. OUTPERFORM."
