Nike (NKE) Drops 9% as Inventory Surges 44%, Analysts See Attractive Valuation

Shares of Nike (NYSE: NKE) are down over 9% in pre-open Friday after the company’s FQ1 results showed excess inventory will likely weigh on earnings and stock in the near term.

Nike reported an EPS of $0.93 on revenue of $12.7 billion to beat the analyst consensus of $0.92 on sales of $12.29 billion. North America revenue soared +13% to nearly fully offset a -13% deceleration in China.

Direct sales were reported at $5.1 billion. However, the fact that inventory came in at $9.66 billion, a surge of +44% on a year-over-year basis that is much higher than the consensus of $6.91 billion is what pushed shares lower.

"Our strong start to FY23 highlights the depth and breadth of NIKE’s global portfolio, as we continue to manage through volatility,” said John Donahoe, President and CEO of NIKE.

Nike also told investors that it bought back $9.4 billion worth of its shares until August 2022.

While analysts are lowering their numbers on Nike to reflect excess inventory, some see a solid long-term opportunity for investors.

“We forecast NKE achieves a mid-teens 2025e EBIT margin, below its high-teens goal announced in June 2021, which we view as more likely thereafter. That said, this year likely represents trough earnings for NKE, & the probability for performance acceleration from here is high & bodes well for future stock price gains,” Morgan Stanley analyst Alex Straton wrote in a client note.

The analyst cut the price target to $120 from $129 but remains Overweight-rated as he believes the current weakness “makes for a potentially attractive entry point for L-T investors.” Still, Straton admits that he “prefers others in our coverage.”

Piper Sandler analyst Abbie Zvejnieks reiterated a Neutral rating while cutting the price objective to $95 from $115.

“While NKE is clearly a leader in technical innovation and the brand continues to resonate with consumers, we maintain our Neutral rating due to near-term inventory headwinds, macro pressures including an uncertain recovery period in China, unfavorable FX, and unclear timing on long-term gross margin targets,” Zvejnieks told clients.

Finally, Goldman Sachs analyst Kate McShane remains “constructive” on NKE stock given its attractive valuation and ongoing success in driving innovation.

By Senad Karaahmetovic

You May Also Be Interested In

• Gilead Sciences (GILD) Misses Q1 EPS by 288c
• SPS Commerce (SPSC) Tops Q1 EPS by 12c
• TechnipFMC (FTI) PT Raised to $30 at BTIG