A Nike Well Collective store in the Upper East Side neighborhood of New York, US, on Friday, June 28, 2024. Nike Inc. shares sank after the sneaker company's full-year outlook missed expectations, stoking investor concerns about waning demand and competition from upstarts On and Hoka, as well as rival Adidas AG. Photographer Bing Guan/Bloomberg
NEW YORK: Wall Street is the least bullish it’s been on Nike Inc shares since 2017 after the sportswear firm’s warning of a slower year ahead spurred a flurry of analysts to remove their “buy” calls from the stock.
The sneaker maker has been losing ground to competition from rivals like Adidas AG and its disappointing outlook led at least seven brokers, including JPMorgan Chase & Co, Morgan Stanley and UBS Group AG, to drop their once bullish positions and move to the sidelines.
Nike’s consensus rating – a proxy for the ratio of “buy”, “hold” and “sell” recommendations – fell to 3.8 out of five last Friday, a more than six-year low.
Fundamental trends at Nike are “much worse than we realised,” UBS analyst Jay Sole wrote in a note as he downgraded his recommendation on the stock to “neutral” from “buy”. “Its lifestyle business needs a major reset.”
Nike was once a favourite among Wall Street analysts, but in recent months the world’s largest sportswear company has lost fans as competitors like On Holding AG, Deckers Outdoor Corp’s Hoka and Adidas have taken market share by appealing to consumers with innovative new styles.
Last week, Williams Trading’s Sam Poser put out an early warning, telling investors to “sell the stock”, with a turnaround unlikely before 2026, if at all.
Wall Street piled on the downgrades last Friday with Morgan Stanley’s Alex Straton cutting Nike to “equal-weight”.
A disappointing set of earnings and reduced outlook pushed her prior overweight thesis – reliant on revenue growth and profit-and-loss improvement in the second half of fiscal 2025 – “out of view”.
Shares plunged 20%, their biggest one-day drop on record, to close at US$75.37. Nike now has 21 “buy”-equivalent recommendations, 20 “holds” and three “sells” among analysts tracked by Bloomberg.
The average price target is US$95.
With prospects for growth inflection pushed further out, investors are being asked to “both underwrite success of not yet proven styles and look across an uncertain consumer discretionary backdrop”, Stifel’s Jim Duffy wrote in his downgrade note cutting Nike to “hold” from “buy”.
Still, many are sticking to their “buy” calls. Bank of America Corp analyst Lorraine Hutchinson, who upgraded her recommendation on the stock to “buy” in April, said the guidance reset was bigger than expected but she sees the new estimates as achievable and they “could prove conservative if the innovation ramps quickly to offset the lifestyle challenges”.
For now, a combination of increasingly difficult macroeconomic conditions, unfavourable channel mix, and volatility in China is weighing on the minds of many analysts, including Raymond James’ Rick Patel.
He cut his rating to “market perform” from “outperform”, writing he did not have confidence in there being upside to revenue.
The update “raised more questions and more uncertainty about the long-term health of the Nike brand”, according to Barclays Plc analyst Adrienne Yih.
She downgraded shares to “equal weight” from “overweight” and expects to stay on the sidelines until she sees greater evidence that the company’s strategic initiatives are driving renewed sales growth. — Bloomberg
