Bank of America expects Nike Inc NKE to continue to lose share to rivals adidas AG (ADR) ADDYY and Under Armour Inc UA through 2017. The view is predicated on the firm's meetings with manufacturers, suppliers and competitors that suggest that innovation gap between Nike's pipeline relative to its competitors may narrow to historical levels.
Analyst Robert Ohmes, who downgraded the stock from Neutral to Underperform, noted that Nike did not launch a major platform during the Olympics and he doesn't expect the company to launch new platforms in the near term.
Futures, Inventory Concerns
Bank of America expects international futures to decelerate amid toughening of comparisons in key markets. The firm noted that international inventory remains elevated and is growing faster than reported futures. While noting that direct-to-consumer same-store sales are supported by inventory clearance, the firm said it is of the view that comps would slow as inventory normalizes.
Competition Heating Up
The firm sees competitive pressure intensifying, as Adidas' re-emergence in North America and Under Armour moves in to accelerate global investments, leading to higher marketing and athlete/team endorsement costs across the industry. Nike is also facing competition for designers.
The firm believes Nike is at least 12 months away from returning to market share gains, given the long industry lead time, as well as strong momentum and distribution expansion from competitor brands such as Adidas and Under Armour.
Lowering Estimates, Rating, Price Target
Consequently, the firm lowered its price target to $46 from $55 along with the lowering of its revenues and earnings per share estimates.
Nike shares were down 3.02 percent at $50.45 and Adidas was down 0.43 percent at $81.64, while Under Armour was gaining 0.52 percent at $31.10.
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