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The Nike-Under Armour Pair Trade Remains Intact, For Now

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The Nike-Under Armour Pair Trade Remains Intact, For Now
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After a multitude of announcements made at Nike Inc (NYSE: NKE)'s biannual investor day this week, Deutsche Bank is keeping the Buy Nike, Sell Under Armour Inc (NYSE: UAA) pair trade intact.

Don't Knock Nike

Deutsche Bank analyst Paul Trussell said Nike’s optimism should surprise no one. He reiterated a Buy rating on the company with a $61 price target.

While questions still persist for Nike over the next 18 months, after management stated it could foresee a 1-2 percent revenue hit in North America in anticipation of further traditional retail closures, the German bank is incrementally more confident in the long term, where the company expects 50 percent of its growth to come from innovation over the next five years. 

Nike is becoming a technology-first company, and its heavy investment in digital is expected to represent 30 percent of revenue over the next five years, doubling its current figure. Nike hit the reset button on its $50 billion revenue target by 2020 set in 2015, stating it will now hit those numbers in the next five years

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Understanding Under Armour

Even as Under Armour products improve, concerns about profitability and market share led Trussell to reiterate a Sell rating on the company and lower its price target from $16 to $14.

Despite the lower price target, Deutsche Bank did raise its third-quarter revenue to up 3.2 percent from 1.1 percent after seeing solid sell-through at Kohl’s Corporation (NYSE: KSS) and a positive initial roll out at DSW Inc. (NYSE: DSW), a good sign for footwear trends.

“Although we do see some positives, we still believe UAA continues to be structurally challenged with a highly elevated promotional environment expected to persist into the holiday season, markdown concerns, the need for heavy spending on marketing and innovation, and the inability to grow earnings in the face of declining sales growth,” said Trussell.

After losing 400 basis points in marketshare over the last 13 weeks due to the basketball category, Under Armour is hoping its full roll out of the Curry 4 on Oct. 27 will help breath new life into the business.

Shares of Nike were trading up over 3 percent, while Under Armour traded up over 1 percent at time of writing.

Related Link: Nike Gets A Boost During Investor Day; Sees Mid-Teen Earnings Growth Over Next 5 Years

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Image used with permission from Under Armour.

Latest Ratings for NKE

DateFirmActionFromTo
Oct 2018OppenheimerUpgradesPerformOutperform
Oct 2018HSBCDowngradesBuyHold
Sep 2018Bank of AmericaMaintainsUnderperformUnderperform

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