Jefferies: Time To Buy Nike

In a report published Thursday, Jefferies analysts initiated coverage of Nike Inc NKE with a Buy rating and a price target of $120, saying that the stock represents "a solid long-term play for investors seeking large-cap growth with mid-teens% total return potential and a call option for accelerated shareholder friendly moves."

In the report Jefferies noted the reasons for the Buy rating as:

• Innovation leadership and category dominance in an athletic industry with secular tailwinds - Nike's global futures orders rose 11 percent in 3Q despite difficult comps
• Growth catalysts across geographies - like China and other emerging markets - and sub-categories - like women’s, apparel, DTC and Converse
• Gross margin expansion beyond prior peaks - This is likely to be driven by pricing power, manufacturing efficiencies and mix shift toward higher margin international and DTC

"Our survey work reveals a continued strong preference for Nike, despite mounting competition, with 47% of respondents choosing Nike as their favorite athletic brand vs 9% and 8% for UA and Adidas, respectively. NKE was also the top choice for both footwear (40% vs 2nd place Adidas at 9%) and apparel (29% vs 2nd place UA at 18%)," the analysts said.

Although Nike's stock valuation is "testing new highs," it remains below that of Under Armour Inc UA and Lululemon Athletica inc. LULU.