Cowen Suits Up With Nike, Looks To Outperform

Not everyone is loyal to the Swoosh, but Nike Inc NKE won a fan in Cowen this week on a booming product cycle and conservative guidance.

The Rating

Cowen analysts John Kernan, Krista Zuber and Jared Orr upgraded Nike to Outperform and raised their price target from $80 to $90.

The Thesis

Nike is projected to capitalize on scaling, a product cycle inflection and its Speed segment to improve gross margins by at least 200 basis points.

“We see ‘Speed’ as a catalyst for value creation in the form of higher margin, valuation, and competitive advantage,” the analysts wrote in a note, saying the “Speed” concept will distinguish the industry’s winners from its loses.

Nike recently reported gross margin improvements reflective of higher full-price average selling prices (ASP) and expansion in Nike Direct. The latter is seen to offset increased production costs and forex headwinds.

“With inventory balances well in check and reflecting a pull market across Nike and Jordan Brand, along with an innovation filled product pipeline, and the 2X Speed initiative sensing/reacting to consumer signals, prospects remain solid for continued higher full price sell through and ASP lift, which could drive gross margin above expectations,” Cowen wrote.

Increased Nike Direct margins and favorable inventory levels are also expected to offset costs and bolster gross margins in the back half of 2019. The analysts forecast $5 earnings per share this year with $6 billion in free cash flow through 2023.

Price Action

At time of publication, Nike shares were set to open up 1 percent at $81.16.

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