Just Hold It: Canaccord Stays Sidelined On Nike Shares

First-Quarter Review

The firm noted that the earnings beat of Nike in the first quarter is due to a 2 percent tax rate, boosting earnings per share by 13 cents, lower SG&A and higher other income. Revenue growth exceeded estimates, although gross margin was weak.

Canaccord also highlighted the weak North American futures orders, as competitive landscape shifts toward adidas AG (ADR) ADDYY and Under Armour Inc UA. The firm expects the weakness in North America to continue, given the weaker futures orders.

Related Link: Street Looks Past Nike's Strong Q1 As Slowing Futures Orders Forebode Limited Upside

Is Implied 2H Revenue Target Attainable?

The firm also raised question about the credibility of the 11 percent revenue growth target for the 2H implied by Nike, as it represents almost doubling of H1 revenue growth, given competitive pressures and the tougher comparisons the period is up against.

Concluding, Canaccord said Nike has to navigate an environment of changing consumer preferences it has not seen for years and this scenario is expected to linger for the foreseeable six to nine months. Therefore, the firm believes the stock's risk-reward have a downward bias.

The shares of Nike were down 4.03 percent at $53.11 at last check.

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