Analyst: Nike's Recovery Will Take Longer Than Expected

Nike Inc NKE's mixed fiscal second-quarter earnings report Thursday will have bulls and bears debating the company's prospects into 2018 and beyond.

The Analyst

The Buckingham Research Group's Scott Krasik maintains a Buy rating on Nike's stock with an unchanged $71 price target.

The Thesis

Nike reported a "solid" Q2 with strength in international growth, Krasik said in a Friday note. (See the analyst's track record here.) 

But the company also saw pressure in the North American segment and in markdowns, Krasik said. Overall, the earnings report showed signs that the North American recovery story is legitimate, but will take a "couple more quarters for Nike to fully reset" the market, he said. 

Competitive pressures and concerns that bears held onto heading into the earnings report should now be considered "overplayed," as Nike showed it is one of the best-positioned consumer growth companies across the world, the analyst said.

Buckingham projects Nike will show the following improvements as early as the bottom half of 2018: 

• New products for sale.
• An easing of markdowns on apparel and older style products.
• Foreign exchange becoming a tailwind for the company.
• The possibility for accelerated share repurchase activity.

Over the longer-term, Nike is investing to "get closer to its consumer" through digital initiatives, Krasik said. This is not only margin-accretive, but will prompt the company to advance manufacturing methods and drive product costs lower, he said. 

Price Action

Shares of Nike were trading lower by 3.15 percent at the time of publication. 

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