UPDATE: ISI Group Reiterates Buy Rating, Raises PT on Nike

In a report published Friday, ISI Group reiterated its Buy rating on Nike

, and raised its price target from $100.00 to $120.00. ISI Group noted, “Not only does it look like Nike has successfully course-corrected, but momentum is picking up steam driven by an amazingly robust North American business, steadily improving gross margins, and early signs that the worst in China has passed. Although 2Q sales slightly disappointed due to China downside (sales -11% vs. consensus -2%) and China futures remained weak (-7%), it was clear that Nike is taking the proactive (and medicinal) steps to clean up that market, and we saw several positives that led us to think things will only get better from here. First, underlying gross margin was positive for the first time in two years (+40 bps excluding 70 bps currency impact); North America once again delivered strong double-digit growth despite tougher 1- and 2-year comparisons; Emerging Markets remained strong (+18% ex-currency vs. +22% in 1Q); and both Nike own stores (comps +10%) and partner stores (positive comps, inventories improving) in China showed signs of turning the corner. And while it may still be 2-3 quarters before China returns to healthy growth, it seems unlikely that there will be any negative surprises from here, and we also remind ourselves that China represents only ~10% of Nike's total revenues. We are raising our price target to $120 from $100, on the premise that the market will start valuing Nike on ~$7.00 earnings power in a couple years. Nike closed on Thursday at $99.00.