Macquarie Upgrades Nike on International Expansion, Stock Action

In a report published Thursday, Macquarie Equities Research analyst Laurent Vasilescu upgraded

from Neutral to Outperform and raised the price target from $80.00 to $84.00 due to international expansion and recent stock action. Vasilescu noted his optimism on Nike's acceleration abroad. The analyst wrote, "Despite dampened expectations due to FX headwinds with the latest print, we are now seeing very healthy revenue acceleration abroad on a constant FX basis." In addition to international expansion, Macquarie commented on the 14 percent year-over-year gains for future orders in the third quarter. The analyst noted that this is the fourth consecutive quarter with "meaningful" year-over-year increase over prior results. Vasilescu remarked that the "impressive" futures orders gives the firm confidence for solid FY15 results. The analyst reported that Nike's sportswear category is gaining momentum in 2014, growing at a double-digit rate last quarter. Macquarie added that China's sportswear market continues to improve. Vasilescu commented, "As for Nike, management has commented that China will still take time to reaccelerate. Future orders on a constant FX basis were down 3% for 3Q14 as management continues to right size the distribution channels in this market. The anticipated opening of the Nike Chinese campus comprising 500,000 square feet in Shanghai will create a dominant presence in this key market longer term." Nike has moved footwear production to Vietnam over the past 12 years as Chinese labor costs continue to rise. The analyst commented that this continued shift will help mitigate rising labor costs and yield gross margins. With shares of Nike down over eight percent following third quarter 2014 results, Macquarie noted that the upgrade is "in part a valuation call. Nike is currently trading at 23x our calendarized 2014 EPS est of $3.20 – compared to its historical 1 yr forward PE avg of 24x." Shares of Nike closed at $73.56 on Wednesday and are currently trending down with the markets at $72.47, down 1.504 percent.