Nike Inc (NYSE:NKE) lost a Buy rating ahead of its fourth-quarter earnings report set for June 28.
The Analyst
Buckingham Research analyst Eric Tracy downgraded Nike from Buy to Neutral, but raised his price target from $75 to $80.
The Thesis
With shares up 18 percent year-to-date, Tracy now sees Nike as a more balanced risk-reward opportunity.
The analyst remains positive on Nike’s long-term fundamentals, but says inflationary pressures and organizational challenges "layer in some risks."
“We believe premium valuation/higher expectations largely reflect many of the positive fundamental view; thus we would look to get more constructive with our rating on either share pullback or better visibility to greater EPS upside catalysts,” Tracy said in a note.
Tracy expects Nike to show progress in North America on improving product, but it will be countered by a reset by Jordan.
The analyst also mentioned Puma’s (OTC:PMMAF) rapid ascension in the basketball footwear conversation is worth monitoring, but assured Nike’s large category position, of roughly 85-90 percent market share, affords Nike a large moat.
While Tracy believes Puma will do less than $100 million in revenue on basketball footwear, he did say Puma’s basketball push has the opportunity to infringe on Nike’s lifestyle category, “potentially impacting Jordan brand this in midst of a reset."
Price Action
Nike was trading relatively flat at time of publication around $73.67 per share.
Related Links:
Puma Takes Over NBA Draft Conversation With Basketball Footwear Push
Stifel: Nike 'Uniquely Positioned' In Shift To Direct-To-Consumer
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