Brean Capital Cautious Into Nike's Tuesday Earnings

Brean Capital’s Eric Tracy prefers to maintain a cautious stance on Nike Inc NKE ahead of its results announcement on June 28.

Tracy maintains a Buy rating on the company, while lowering the price target from $74 to $68.

Risk/Reward

The analyst believes the risk/reward on the stock is skewed to the upside in the long term. However, at the current levels, the investors might be accounting for near-term negatives.

Tracy expressed a bullish stance for the longer term due to “1) accelerating vendor pipeline coming out of Rio Olympics, 2) a multitude of levers, as well as 3) a best-in-class brand that should support continued outperformance vs. peers, somewhat insulating NKE from pressures domestically.”

Related Link: Baird Is Long Nike; Revenue Could Ramp Back Up In 2017

Near-Term Concerns

The analyst expects the later stage athleisure cycle and b-ball pricing to weight on North American revenues and futures, which might see decelerating growth after several years of outperformance.

The deceleration is expected to be driven by “1) liquidation headwinds/ongoing consolidation at domestic athletic retail, 2) an athleisure cycle that is long in the tooth, and 3) bball pricing likely moderating against tough multi-year compares in the most mature market.”

However, Tracy also expects re-acceleration in FY17, driven by an accelerating vendor pipeline, although EPS was likely to be muted due to demand creation expenses.

“While slowing bball ASP growth will also be a headwind, we believe refreshes/new platforms in technical running should be somewhat of an offset, supported by higher pricing,” Tracy pointed out.