Market Overview

Cowen: Nike's Valuation Looks High Amid Unprecedented North American Competition

Share:
Cowen: Nike's Valuation Looks High Amid Unprecedented North American Competition
Related NKE
Rhone Looks To Pioneer An Underserved Premium Mens Activewear Category
Analyst: Full Price Selling Is Significantly Improving At Foot Locker
Foot Locker: Q3 Earnings Preview (Seeking Alpha)

Nike Inc (NYSE: NKE) shares were hit hard Wednesday after a sell-side analyst said the company's valuation feels rich after recently striking all-time highs.

The Analyst

Cowen analyst John Kernan maintained a Market Perform rating on Nike with a $81 price target.

The Thesis

Nike’s 30th anniversary of the "Just Do It" campaign that prominently featured Colin Kaepernick resonated strongly with 18-34-year-old men and Nike consumers that spend $300 or more annually, but it may have alienated Nike consumers earnings over $100,000 per year, Kernan said. (See his track record here.) 

Twenty-five percent of men and women in the high-income demographic said they were slightly less; significantly less; or will not buy Nike products any more, according to a Cowen Consumer Tracker Survey.

Among male respondents, 36 percent said their first choice of a replacement brand is adidas AG (ADR) (OTC: ADDYY) at 36 percent. With female respondents, the replacement brand of choice was Under Armour Inc (NYSE: UAA) at 23 percent.

Still, Nike appears to be doubling down on its most loyal customers.

The apparel maker's recent acquisition of Zodiac is symbolic of the company’s strategy and focus on its most valuable customers in an era where the brand faces an unprecedented amount of competition in North America, Kernan said. 

Although 37 percent of the U.S. population has purchased Nike in the past year, Kernan said 75 percent of Nike’s growth in the next five years will be generated internationally. The analyst forecast that China will generate 45 percent of total company EBIT growth.

“While NKE is one of the highest and most consistent return-on-capital business we have ever studied, the stock is fairly rich,” the analyst said. 

“P/E expansion to 31x from 21x in the span of 12 months keeps us sidelined on Nike.”

Price Action

Nike shares were down 5.72 percent at $75.84 at the time of publication Wednesday. 

Related Links:

Lululemon Has Growth Opportunities In Men's, International, Wells Fargo Says In Upgrade

Analysts Upgrade Nike On $50B Revenue Potential, Direct-To-Consumer Growth

Photo courtesy of Nike. 

Latest Ratings for NKE

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

View More Analyst Ratings for NKE
View the Latest Analyst Ratings

Posted-In: Adidas Colin Kaepernick CowenAnalyst Color News Price Target Reiteration Analyst Ratings Best of Benzinga

 

Related Articles (NKE + ADDYY)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
BBCIBCUpgrades0.0
BKNGWells FargoUpgrades0.0
DARJP MorganUpgrades25.0
EEXBarclaysDowngrades12.0
HPCredit SuisseUpgrades65.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Maxim Has An Appetite For Potbelly

BlueFin Talks VCSEL 'Drama' Ahead Of Q3 Earnings Season