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Deutsche Bank sets $115 target for Nike, cites innovation cycle

EditorLina Guerrero
Published 06/12/2024, 04:57 PM
© Reuters

On Wednesday, Deutsche Bank resumed coverage of Nike Inc (NYSE:NKE), assigning a Buy rating and setting a price target of $115.00. Nike is poised to undertake significant business transformation and innovation, which Deutsche Bank anticipates will lead to increased sales growth and market share expansion. The firm is optimistic about Nike's prospects, especially in light of the upcoming Paris Olympics and the brand's strategic pivot back to wholesale distribution.

Nike's current price-to-earnings (P/E) ratio is near a decade low, which Deutsche Bank views as an attractive risk/reward situation for investors. The bank acknowledges that Nike's recovery may be gradual, as the company has forecasted a low single-digit sales decline in the first half of 2025. Despite this, the firm remains positive about Nike's future, especially with the brand's increased focus on innovation.

The bank points to several key factors that support its bullish outlook. Nike is expected to gain traction with its innovation strategy ahead of the Paris Olympics, which could lead to an uptick in sales. Additionally, the company's shift back to wholesale channels is anticipated to enhance the distribution of new products and reclaim shelf space. Nike's established relationships with key partners are also seen as a significant advantage.

Deutsche Bank also highlights that investor expectations have been recalibrated, with the consensus projecting a mid-single-digit compound annual growth rate (CAGR) in sales, compared to Nike's long-term plan of high single-digit to low double-digit growth. This recalibration comes as Nike prepares for its first Investor Day in seven years, scheduled for fall.

Lastly, the bank sees potential for Nike to improve its gross margins through various means, including better freight management, limited promotions, and reduced product costs. Additionally, there is an opportunity for margin recovery in the China market, which accounts for 15% of Nike's sales and has experienced a 670 basis point margin decline compared to pre-COVID levels.

In other recent news, Nike Inc. has been the subject of several noteworthy developments. Wells Fargo has revised its price target for the company's shares, reducing it to $115 due to concerns about Nike's direct-to-consumer sales and supplier issues. The financial institution's revised revenue and earnings per share forecasts for fiscal 2025 are now set below consensus estimates, with anticipated declines in revenue of 5%, 4%, and 1% for the first quarter, second quarter, and full fiscal year, respectively.

Additionally, Nike announced a quarterly cash dividend of $0.37 per share, maintaining its practice of returning value to shareholders. The company also unveiled a significant innovation in athletic footwear, launching its first sculpted, visible Air Zoom (NASDAQ:ZM) unit in the Pegasus Premium running shoe.

In terms of personnel changes, Nike is among the companies initiating workforce reductions at the start of 2024 as part of widespread cost-saving measures. Meanwhile, Representative Thomas Kean Jr. partially sold his holdings in Nike, and Representative Earl Blumenauer of Oregon's 3rd congressional district added Nike shares to his spouse's retirement portfolio. These are recent developments that shape the current landscape for Nike, Inc.

InvestingPro Insights

As Nike Inc (NYSE:NKE) embarks on a transformative journey, highlighted by Deutsche Bank's optimistic outlook, real-time data from InvestingPro offers further insights. Nike's current market capitalization stands at a robust $141.37 billion, reflecting its significant presence in the industry. Despite analysts revising their earnings downwards for the upcoming period, Nike's enduring commitment to innovation and brand strength is evident in its 22-year streak of raising dividends, underscoring its financial stability and shareholder value focus. Moreover, with a P/E ratio of 27.36, the company trades at a valuation that could attract investors looking for established brands with a track record of profitability.

InvestingPro Tips reveal that Nike is a prominent player in its sector, with cash flows that can comfortably cover interest payments. Additionally, the company's liquid assets exceed its short-term obligations, indicating a solid financial footing. For those considering an investment, it's worth noting that Nike is trading near its 52-week low, which might present a buying opportunity for long-term investors. With these factors in mind, and additional tips available on InvestingPro, interested investors can explore deeper insights using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. In total, there are 12 additional InvestingPro Tips that could further inform investment decisions regarding Nike.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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