Canaccord Genuity Cuts PT on Nike (NKE) to $57; Reliance on Futures Orders Quickly Waning
Canaccord Genuity trims its price target on Hold-rated Nike (NYSE: NKE) from $66 to $57 following Q3 results issued Tuesday night.
Analyst Camilio Lyon commented, Given the revenue miss coupled with futures orders (+12%, in line with our ests) that are becoming less of a predictor of reported sales, we believe the stock will be subject to multiple compression. Moreover, inventory levels in NA remain elevated, and we believe the soft NKE signature basketball business (LeBron and KD) is exacerbating this issue. We cannot ignore the likelihood that increased competition (from both UA and Adidas) is resulting in share loss by NKE at retail. Taking it together, coupled with a premium valuation (27x P/E), we believe the stock will remain range-bound until sales beats can materialize.
Lyon coninued, For the second consecutive quarter, the dislocation between futures and reported sales widened, and this trend is unlikely to change. We believe the biggest contributors to this dislocation are the strength of NKE's DTC (included in futures) and more importantly the timing of when NKE recognizes a sale (sooner for wholesale sell-in, later for a DTC sale to consumers). As such, the reliance of futures as an indicator of forward sales growth is quickly waning. For the past two quarters, strong futures orders have not turned into commensurate reported sales growth and guidance suggests this won't happen in Q4 either (futures +12% but expected sales growth of MSD). While demand appears to be strong, the sales numbers are not reflecting that strength, thus diminishing the value of futures.
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