'Just Don't Do It': Analysts Slash Nike Price Targets Citing Inventory, China Concerns

Zinger Key Points
  • Nike beats Street estimates for revenue and earnings per share in the first quarter.
  • Concerns over inflated inventory and lower growth in China are among the items highlighted by analysts.

Footwear and apparel company Nike Inc. NKE beat Street estimates for revenue and earnings per share in the first quarter, but saw shares fall sharply Thursday after market close.

Investors and analysts now have some major concerns after the latest report.

The Nike Analysts

  • Morgan Stanley analyst Alex Straton has an Overweight rating and lowers the price target from $129 to $120.
  • BMO Capital analyst Simeon Siegel has an Outperform rating and lowers the price target from $128 to $110.
  • RBC Capital analyst Piral Dadhania has an Outperformn rating and lowers the price target from $125 to $115.
  • KeyBanc analyst Noah Zatzkin has a Sector Weight rating and no price target.
  • Telsey analyst Cristina Fernandez has an Outperform rating and lowers the price target from $125 to $110.

See Also: Nike Q1 Earnings Highlights - Revenue & EPS Beat 

Key Takeaways

Straton keeps an Overweight rating on Nike but points to better opportunities elsewhere in the market.

“Discounted valuation feels fair for now, but also makes for a potentially attractive entry point for long-term investors,” Straton said.

The analyst called the first quarter earnings a “wash.” Concerns over China, inventory and gross margins were among the items Straton highlighted: “Lowered guidance means FY 2023 is clearly shaping up to be a transition year.”

For Siegel, the big story is Nike’s missing margins. While the company beat earnings and revenue estimates, it missed estimates for gross margins from analysts and also posted guidance below estimates moving forward.

“Why force revenues if they drive EBIT declines? Sell less, charge more, make more,” Siegel said.

Nike has a competitive advantage for the long term, but remains cautious moving forward with inventory levels elevated signaling a high promotional cycle, Siegel explained.

Higher inventory levels in North America and the first quarter earnings results from Nike show the company is “not immune” to fears from investors, according to Dadhania, who cut the price target.

“Excess inventories in North America have been the principal fear amongst investors in recent weeks/months,” Dadhania said.

Zatzkin said Nike posted “solid 1Q results” in a challenging environment, but points to several headwinds for the company.

Related Link: How To Trade Nike Stock Before And After Q1 Earnings 

“Greater China is an important driver of the business, and while we see long-term growth opportunity, we think substantial improvement in trends could remain elusive in the near term,” Zatzkin said. “We remain cautious regarding the timeframe for a return to strong growth.”

Inventory concerns are the major key being pointed to by Fernandez. The analyst said the results from Nike were “mixed” with strength in the first quarter and potential weakness ahead.

“Consumer demand for Nike product remains strong and Nike was able to exceed 1QF23 sales expectations during a challenging period, as it leaned into its direct business,” Fernandez said.

Like other analysts, Fernandez cites higher inventory levels as a potential negative catalyst weighing on Nike.

“The revised FY23 outlook, however, was disappointing due to the need to take more markdowns to clear through seasonal inventory that arrived late, largely in apparel, and work down high inventory levels.”

NKE Price Action: Nike shares are down 10% to $86.01 on Friday, setting new 52-week lows.

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Posted In: Analyst ColorNewsPrice TargetReiterationAnalyst RatingsMoversTrading IdeasAlex Stratonapparel stocksBMO CapitalChinaCristina FernandezKeyBancMorgan StanleyNikeNoah ZatzkinPiral DadhaniaRBC Capital MarketsRetail StocksSimeon SiegelTelsey
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