Nike Rises As Analysts Get More Bullish On Growth After Recent Pullback

Shares of Nike (NKE) are on the rise after UBS analyst Jay Sole upgraded the stock to Buy as he expects valuation on the shares to increase as investors begin to appreciate the company's business model changes as well as its investments. Meanwhile, his peer at JPMorgan added Nike to his firm's Analyst Focus List as a growth pick.

BUY NIKE: UBS analyst Jay Sole upgraded Nike to Buy from Neutral and raised his price target on the shares to $136 from $103. The analyst argued that he expects the valuation on the stock to increase as investors begin to appreciate the company's business model changes as well as its investment in product innovation, supply chain, and e-commerce, raising his 5-year revenue growth forecast to 9% from 6.5% and earnings growth outlook to 17% from 15%. Sole added that his new Nike price target assumes a 37-times forward earnings multiple, which is in line with other top global consumer discretionary stocks.

Overall, Sole believes that Nike is on the verge of a new, extended period of elevated sales growth rates, and sees it generating “surprising” gross margin gains by reducing markdowns. Additionally, the analyst does not think competition or the Wuhan coronavirus can stop Nike long-term, nor does he think “athleisure” fades.

GROWTH PICK: Meanwhile, JPMorgan analyst Matthew Boss added Nike to his firm's Analyst Focus List as a growth pick and boosted his price target for the shares to $111 from $110, while keeping an Overweight rating on the name. The 9% selloff in Nike shares over the past two weeks offers a "multi-year buying opportunity," Boss contended, adding that Nike's "2020 Forum" represents a near-term catalyst as the first platform for management to showcase the product pipeline tied directly to its innovation targets set in fiscal 2017 across both apparel and footwear.

Boss expects management’s tone on China to be a key investor focal point, with Greater China representing 16% of Nike's revenues and 23%/27% of apparel/footwear sourcing respectively, including domestic. A potential buffer to consumer disruption, he noted, is that Greater China has the highest digital penetration of all Nike's regions, offering a full digital ecosystem post the recent launch of Nike’s app in China in December.

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