Goldman Sachs Starts Nike (NKE) at Buy, Analyst Says Data Remains Robust Despite NT China Headwinds

October 12, 2021 9:29 AM EDT
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Price: $164.45 +1.29%

Rating Summary:
    40 Buy, 10 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 16 | Down: 18 | New: 17
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Goldman Sachs analyst Kate McShane started the research coverage of Nike (NYSE: NKE) with a Buy rating and a $172.00 per share price target.

The analyst outlined 4 factors supporting his Buy rating: 1) Healthy industry backdrop, 2) DTC can further grow, 3) High cash balance, 4) Valuation is still attractive.

On the final point, McShane said that the recent pullback is likely transitory with near-term headwinds already priced in. Hence, there is more share price upside in the Nike stock.

“Currently, Nike is facing more macro headwinds (China, the supply chain, cotton inflation) than it has in some time. There have been very few times in history when Nike’s stock has underperformed vs. the S&P 500 : 1). 2015-2016: When Nike struggled with bringing compelling innovation to the market as adidas’ Stan Smith sales soared, while Sports Authority’s bankruptcy filing in 2016 created a surplus of inventory in the marketplace, creating a more challenged environment within sporting goods retail 2). 2011: When Nike’s gross margins declined notably during a highly inflationary time for cotton, and 3). 2004-2005: When the company was transitioning leadership away from founder Phil Knight,” McShane said in a client note.

“We note that while all three periods took some time for the stock to improve, the stock has generally outperformed in subsequent years. While the stock is currently trading at a slight premium to where it has been relative to the market on average over a 1, 2, 3, and 5-year time period. (the stock is +6% YTD, vs. the S&P at +16% YTD), we think there could still be upside to the stock as Nike will likely benefit from more customers focusing on wellness, a likely increased casualization of fashion trends post the pandemic, continued execution of the company’s differentiated retail strategy which should drive stronger sales and margins, the leveraging of its rich customer data and suite of apps to drive membership and demand globally, and as supply/demand remains extremely tight; limiting promotions.”

Shares of Nike are up 1.6% in pre-open Tuesday.

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