Nike Sell-Side Roundup: Staying Bullish Is The Right Foot Forward

Despite its slight earnings beat, Nike Inc NKE fell as much as 5 percent Wednesday after management guided for contracted gross margins and dampened sales growth.

However, analysts professed justified bullishness. Here is what the sell-side had to say about Nike after its Tuesday quarterly report:

North American Improvement

North American sales proved disappointing, but Morgan Stanley asserted confidence in segment recovery as Nike effects a minimum advertised pricing policy, withdraws from weak distribution channels and more pointedly adapts to trends in lifestyle fashion.

“These courageous and arguably unexpected steps partially explain weak North America guidance,” analyst Jay Sole wrote. “Yet, they are critical in our view for Nike to ultimately resume healthy North America growth.”

Anticipating sales catalysts in the Winter Olympics and World Cup, Sole maintains an Overweight rating with a $62 target.

Digital Sales Emphasis

Nike compensated for weak domestic performance with strength in its international sales and e-commerce, the latter of which, an enduring emphasis for the firm, merits hope for Credit Suisse.

“Nike now appears to be playing offense rather than defense, positioning itself as an innovative, increasingly digital brand capable of surviving the structural shifts of the physical retail industry,” analysts Christian Buss, Sara Shuler and Pallavi Bakshi wrote.

Stifel analyst Jim Duffy agreed that the brand is “well suited to transition through channel mix shifts from wholesale to digital,” while Baird Equity Research analyst Jonathan Komp noted that international and direct sales are critical and sustainable growth drivers moving forward.

Credit Suisse maintains an Outperform rating with a $63 target, Stifel maintains a Buy with a $66 target, and Baird maintains an Outperform with a $65 target.

Product Innovation

Buckingham Research Group expects Nike to profit off platforms leveraging trends in healthy and active living as well as digital connectivity. Analysts see potential particularly in the firm’s NBA Connect jerseys and new footwear technologies.

“We are buyers at current levels as we think investors have become too myopically focused on near-term noise driven largely by fashion shifts alone and transactional FX pressure underestimating the power of the Nike brand,” analyst Scott Krasik wrote.

Anticipating decreases in manufacturing costs driven by tech advancements, Buckingham maintained a Buy rating with a $64 target.

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