Nike's Advanced Manufacturing Could Be Revolutionary

Nike Inc NKE has announced a strategic partnership with affiliates of Apollo Global Management LLC APO to create “a vertically integrated supply chain ecosystem for apparel manufacturing in the Americas,” Brean Capital’s Eric Tracy said in a report. He maintained a Buy rating on Nike, with a price target of $62.

The terms of the partnership have not been disclosed. The entity with which Nike has partnered had already acquired two apparel suppliers in North and Central America, analyst Eric Tracy mentioned.

Game Changer

Tracy views the agreement as a milestone towards “disruptive manufacturing technology.” He added that this trend could prove to be a game changer to Nike’s model in the long term, “as vendors can leverage reduced lead times and enhanced customization to more seamlessly meet consumer demand.”

Noting that Nike’s core competencies were in footwear, the analyst commented that it would be interesting to see how the company leverages the combination of its existing infrastructure and the enhanced automation implied by the strategic partnership.

Nike’s shares are down 8 percent year-to-date, and the risk/reward appears favorable. Tracy added that the FY17 guidance, which calls for acceleration in revenue and EPS growth in the back half, seemed achievable.

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