The Case for Buying Nike Ahead of Earnings
Nike is heading into its earnings report in a position of strength and will likely emerge from COVID-19 with a competitive edge over its rivals, according to a number of Wall Street analysts. Nike delivers its quarterly results on Thursday, and analysts are pumping up their price targets in anticipation of positive near-term performance.
Wholesale: The closure of key wholesale partners such as Dick’s Sporting Goods and Foot Locker put a dent in Nike’s revenue in the recent quarter, but analysts expect weakness in wholesale to be short lived as the economy continues to reopen.
Susquehanna analyst Sam Poser raised his price target for shares of Nike to $130 from $100 on Monday evening, telling investors they should buy the stock ahead of earnings.
“As retailer partners begin to recover, we expect the strongest brands with a proven track record of success to receive the vast majority of open-to-buy dollars from wholesale accounts.”
The wholesale recovery could take longer than some expect, however.
“The majority of NKE's business remains in wholesale and while department store exposure is low (<15% of NA Wholesale per our estimate) we expect the channel to take some time to work through inventory/promo challenges,” according to Piper Sandler analyst Erinn Murphy, who has a $112 price target.
Direct-to-Consumer: Nike's DTC mastery has helped to mitigate the damage from Brick & Mortar closures. UBS highlights a couple key stats to show the effectiveness of Nike’s online branding efforts:
Nike's likes per post on Instagram increased 235% year-over-year in May, double all of its athletic wear competitors combined.
Comscore data shows a large 4Q20 jump in views of Nike's digital properties, including 97% growth in May.
Risks to watch: Stimulus checks and the absence of public entertainment activities such as bars, restaurants, and travel may have allowed Nike and other brands to capture a bigger portion of consumer discretionary dollars. Murphy says she worries about “a potential consumer discretionary ‘air pocket’ in the coming months” as benefits wear off and entertainment options become more available.
