Nike Stock: A Case for Investment?

Nike (ticker: NKE) has stumbled this year with an 8.2% fall in 2023, hindered by high inventory, insufficient demand, a slowing Chinese market, and competition from brands like On and Hoka. Its targets seem increasingly ambitious, and the valuation multiple looks inflated.

However, some analysts see signs of a turnaround. Nike’s problems, including high Covid-era costs and unsold products, are waning, and innovation is coming back into focus. With markdowns in the U.S. slowing and China’s economy recovering, Nike’s sales growth is expected to accelerate and margins to improve. UBS analyst Jay Sole suggests that the stock could begin moving higher as sales growth and margin improvement are recognized by the market, possibly even before Nike reports earnings in late September.

A key area to watch is Nike’s “direct to consumer” (DTC) channel. Though the recent announcement to sell at Macy’s has raised concerns about this strategy, the underlying business model appears strong. Current-quarter sales guidance calls for a mid-single digit increase. Oppenheimer’s Brian Nagel believes Nike’s model is in “great shape” and has set a $150 price target, 40% above its recent level.

Despite falling short of its predicted high-teen margins by 2025 (with margins of only 11.5% in fiscal-year 2023), UBS’ Sole argues that the targets are still reachable. By stripping out temporary factors and considering online business growth, margins could approach 18%.

China also presents an opportunity, with middle-to-upper-income households expected to grow about 11% annually through 2025. Wall Street analysts forecast a 13% annual sales growth in China, pushing Nike’s total sales to around $65.7 billion by 2026.

With potential earnings of $5.50 a share in 2026, Jefferies analyst Randal Konik believes that the DTC business can be the catalyst that reasserts Nike’s brand power and drives the upside. His price target for Nike is $140, reflecting a 30% potential upside.

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Source: https://www.barrons.com/articles/buy-nike-stock-price-pick-7c0b0bd0?mod=stock_picks_lp