For a company whose shares powered to new highs on what felt like a daily basis for much of last year, Nike (NYSE:NKE) has surprised many with its sluggish performance in the first half of 2021. Their shares are trading down more than 10% from the most recent all time high that they tagged at the end of December. In the grand scheme of things, this shouldn’t be anything to worry about, but many on Wall Street had pinned Nike as an easy winner for 2021.
The stock chart shows that shares are in danger of forming a downtrend with lower highs and potentially lower lows on the horizon if they don’t start finding some strength on the bid. But based on recent comments from the sell-side, Nike could be about to jerk itself out of its slumber and get back to the front of the pack.
Fresh Upgrades
Yesterday morning, the folks over at Morgan Stanley were out with a price target increase on Nike shares, moving them up to $185. Considering shares are hovering around the $130 mark, this points to some attractive upside in the region of 40%. Analyst Kimberly Greenberger acknowledged the headwinds currently facing Nike, such as a consumer boycott in China, but thinks these are more short term than many are expecting. She believes that core strengths such as the company’s long-term revenue, margin expansion, and EPS growth potential are still very much in play and will win out eventually.
The bullish call came as Nike shares logged their tenth red day of the month and so would have been much appreciated by investors who could be starting to grow impatient. But it’s also not the first upgrade, and in fact is merely the latest of what’s been a solid run of positive calls in recent weeks.
Jefferies moved shares from a Hold to a Buy rating last month, noting how the future hybrid working from home model should act as a tailwind as employees buy for comfort at home rather than professionalism in the office. In a note to clients, they said "with companies adopting this modern work approach (on-premise and at-home), we believe the backdrop is favorable and supports demand durability for sportswear in the years ahead".
The team also dismissed the boycott in China, saying “it is our view that China will remain the fastest growing region for Nike in the years ahead aided by greater interest in health, shifting demographics, market leading brand awareness and favorable channel mix. China is also the highest margin region for Nike, which inherently should enhance the company’s profitability profile and help unlock valuation upside".
Higher Price Targets
A $192 price target from Jefferies sits nicely with that from Morgan Stanley and if you’re inclined to row in behind the experts then there’s a lot to like about Nike shares right now. UBS has called them a “top post reopening” stock pick while Baird has pointed to the favorable risk / reward set up currently on offer. The latter is also of the view that Chinese based headwinds are temporary and that the company’s broader transformation to a digital-first business will be the key driver of share performance over the longer term.
Industry-wise, JP Morgan sees the apparel market growing more than 20% this year, which would be 6% higher than its growth in 2019. A strong undercurrent of demand like that really only serves to further highlight both how Nike shares are lagging and more importantly what they might do once the tide turns.
If shares can remain above the $126 level then a short-term triple bottom should form in the next few weeks. This could act as a solid springboard for momentum to spring from as shares head for the mid $100s and beyond. The stock’s RSI has trickled below 40 which suggests that we’re getting close to oversold levels, and Nike has just too much going for it over the long run to stay oversold for long.
