Why Credit Suisse Is Calling a Bottom in Nike

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Just last year, Nike Inc. (NYSE: NKE) was the worst performing Dow Jones Industrial Average stock, but so far in 2017 it has been one of the best performing Dow stocks. Although the company still faces strong competition from Under Armour and Adidas, it seems that there are more positive trends that can carry Nike forward. At least one key analyst is growing more bullish on Nike and where it stands to run from here.

Credit Suisse has an Outperform rating and raised its price target to $67 from $60, implying an upside of 18% from Monday’s closing price ($56.67).

The firm is becoming increasingly bullish on Nike as it sees a series of incremental revenue catalysts that suggest the recent period of market share losses will moderate in 2017. Credit Suisse expects these catalysts to reaccelerate developed market revenue growth. In the report, the firm listed the five incremental revenue catalysts for Nike as follows:

  • Product innovation platform: Air VaporMax
  • Rationalization of pricing architecture for premium product
  • Celebrity collaborations added to the roster
  • NBA license takeover in the second half of 2017
  • Moderating competitive headwinds from Under Armour and Adidas

Credit Suisse also said:

Earnings growth should also benefit from inventory rationalization initiatives in 2H16 and continued mix shift towards higher-margin DTC sales. Online sentiment data looks encouraging for the brand as well. In the near-term, we are more positive than the street in our 3Q17 and FY17 revenue and EPS expectations. Longer term, we believe the company can maintain high-single digit topline growth and teens EPS growth, making it a true standout in the softlines space. As a result, we reiterate our Outperform rating on the shares, adjust our estimates (FY18 EPS goes to $2.70 from $2.68) and raise our Target Price to $67 from $60. FY17 EPS goes to $2.37 (from $2.36) and FY19 EPS goes to $3.11 (from $3.06).

Consensus estimates from Thomson Reuters call for $2.34 and $2.63 in earnings per share for 2017 and 2018, respectively.

Looking ahead to the third quarter, Credit Suisse expects global constant currency futures up 4% to 5% year over year. The firm estimates total North American futures to be up 1.4%, a rebound from the negative futures growth in the second quarter. China futures growth remains in double digits at up 11% with Western Europe up 5%. Risks to futures numbers and estimates include changes in consumer spending preference for athletic apparel and elevated competitive headwinds.

Shares of Nike were last seen up nearly 2% to $57.74 on Tuesday, with a consensus analyst price target of $62.04 and a 52-week trading range of $49.01 to $65.44.