Analysts Mostly Impressed With Nike's China Recovery
Here is a summary of how some of the Street's top analysts reacted to the print and management's commentary.
The five main takeaways from Nike's report according to Credit Suisse analyst Michael Binetti include:
- EPS of 78 cents came in better than the Street's estimate of 59 cents, which solidifies its status as a company that "shines bright" in a downturn.
- Revenue in China was down 4% in the quarter versus expectations of 10%. The pace of the company's recovery is a "game-changer."
- The company prioritized sales over margins.
- Fiscal fourth-quarter EPS estimates are now revised "significantly" from a 30-cent loss to 5-cent growth.
- Near-term revenue visibility remains low and the pace of recovery in each country will be different.
Credit For China
Nike's showed the company managed any coronavirus-related disruptions in China "exceptionally well" as it pivoted towards digital channels throughout February, Wells Fargo analyst Tom Nikic said. The company is now seeing a "fairly rapid" recovery with stores and can be used as part of a "playbook" to manage the crisis elsewhere.
Any timeline for similar recoveries across the world can't be modeled at this time so management can't issue any guidance.
"NKE once again demonstrated the strength of their business model, as a focus on innovation and consumer engagement are helping them navigate one of the biggest disruptions we've ever seen," the analyst wrote in a note.
Nike's fiscal 2021 sales are likely to fall just 1% and the company resume EPS growth in the back half of the fiscal year, UBS analyst Jay Sole wrote in a note. Looking forward to fiscal 2022, sales in North America and Europe are likely to bounce back and 2023 could mark a "new EPS peak."
Even if Nike's next six to eight quarters remain negatively impacted in some form, Sole said it's a "relatively short" period as part of a 12-year discounted cash flow analysis. Under a bull case model, shares of an upside potential of 183% and under a bear case shares can still rise 74%.
Nike's encouraging earnings makes the case for the company to be the "strongest positioned" in a post coronavirus world, Wedbush analyst Christopher Svezia wrote in a note. Granted, the virus and its impact on the economy is "nowhere near over," Nike's performance in the quarter shows it can get back on track faster than its peers.
Svezia said the company's unique digital business, successful innovation in the product pipeline, SG&A optionality are likely to help push consensus estimates higher. Meanwhile, the stock was trading at 21 times the research firm's fiscal 2022 EPS (after hours Tuesday) which represents an 18% discount to its historic average.
Piper Sandler: 'More Hope'
Nike noted an improving business not only in China but in Korea and Japan, including week-on-week traffic with a double-digit increase, Piper Sandler analyst Erinn Murphy wrote in a note. Encouragingly, Korea and Japan are both showing a recovery similar to what was seen in China.
Nike's report should give investors "more hope" around a potential recovery in North America and other regions, although at a different timeline.
NKE Ratings And Price Targets
- Credit Suisse maintains at Outperform, $92 price target.
- Wells Fargo maintains at Equal Weight, $87 price target.
- UBS maintains at Buy, price target lowered from $123 to $114.
- Wedbush maintains at Outperform, price target lifted from $91 to $93.
- Piper Sandler maintains at Overweight, price target lifted from $82 to $94.
Nike's stock closed higher by 9% at $79.01 per share.
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