Redburn not as optimistic as the market on Nike (NKE) and Lululemon (LULU); Starts at Sell
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Redburn analysts led by Geoff Lowery initiated research coverage of the Sportswear sector. The analyst writes that there is a “significant dissonance on display with regards to sportswear” and that the outlook is not as bright as valuations of certain stocks show.
Moreover, Redburn’s deep-dive analysis into Nike indicates that sales and especially margins will disappoint. Lowery’s ‘fair value’ of $100 per share suggests a 15% downside risk relative to yesterday’s closing price.
“While we expect decent EPS growth beyond 2023E, we think consensus is too high for multiple outer years and that downgrades will challenge what is a record valuation (risk-free rate adjusted). Moreover, this valuation is high, absolute and relative, despite uncertainties over the recovery in China (and what multiple it should attract),” Lowery added.
Similarly, Lululemon is a new Sell at Redburn as “the next phase will challenge its ability to sustain margins as consensus expects.”
On the contrary, Under Armour (NYSE: UAA), as well as Adidas, Puma, and JD Sports, are a new Buy at Redburn.
“Shares are near all-time relative lows, and behind the detail we see progress in Footwear, International ex-Asia and wider execution. This is a platform for the new CEO. While there is risk in the short term, there is potentially meaningful upside to consensus in outer years,” Lowery wrote on UAA.
By Senad Karaahmetovic
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