Nike Is Nearing Citi's Bear-Case Scenario

Nike Inc NKE is nearing Citi's bear-case scenario of $46, with shares down 16 percent year-to-date as Brexit has clearly created more uncertainty around the FY17 setup. In the pre-market hours, the shares fell 1.10 percent to $52.50.

"At these levels, we think there are investors (based on recent calls) who will take advantage of a high quality global growth name, and we expect upside over the next 12mos from: an improved basketball platform, brand momentum on upcoming Olympics/Euro Champs, supply chain efficiencies, & higher share buybacks," analyst Kate McShane wrote in a note.

"While Nike is facing some better competition versus recent years, we view this more as an opportunity than a risk," McShane added.

However, McShane cut FY17 and FY18 EPS estimates to $2.40 and $2.85, respectively, from $2.50 and $2.90 previously, primarily reflecting more modest top-line assumptions in North America, continued gross margin declines into the first quarter.

Nearing, But Not There Yet

That said, the analyst, who reiterated Buy rating on the stock, still considers Nike as "one of the better, more fundamentally sound names in retail that investors can now buy at a significant discount."

Related Link: No Crying Jordans At Jefferies: Nike Still A Long-Term Winner

McShane said at 18.7x consensus forward P/E, Nike shares are currently trading at an 18 percent discount to their three-year average and well below last year's highs around 27x. Notably, Nike is also trading at a 23 percent discount to its closest peer adidas AG (ADR) ADDYY, versus an average 27 percent premium to adidas over the last three years.

Meanwhile, Nike reported a fourth-quarter beat of $0.49 and reiterated preliminary FY17 guidance, despite weaker-than-expected North America sales and a slight futures miss. The company still expects high single-digit top-line growth and implied double-digit EPS growth for the year.

The analyst noted that Nike's "innovation across the supply chain is a competitive advantage and minimizes disruption risk," resulting in continued upside to EPS and justifying the stock's premium multiple.

In addition, the analyst slashed target price for Nike to $61 from $75 following updated EPS estimates and a more conservative target multiple.

Shares of Nike closed Tuesday's regular trading session at $53.09.