With US Market Still Unclear, Nike Hit With A Downgrade

2017 will go down as a turning point in Nike Inc NKE's history.

After turning in the worst performance in the Dow in 2016, the stock has recovered this year, with shares up 17 percent.

The sportswear giant is heading into 2018 with more focus on innovation, differentiated retail and reaching the consumer directly, but the near-term story is mixed, leading HSBC to downgrade shares from a Buy to a Hold on Tuesday. HSBC maintained a $62 price target for Nike. 

“We have no doubt that the stock could prove to be a compounding captain of industry," said analyst Erwan Rambourg.

"Our doubts are more on who is the incremental buyer given the positive share price performance and the sell-side positioning (20 Buys, 18 Hold, 1 Sell) and still a somewhat blurred visibility on the short term in the key U.S. market." 

In North America, 60 percent of Nike sales occur at what the company terms "undifferentiated wholesale accounts," a number HSBC projects will fall to 20 percent in five years. 

While this is good for brand equity and full price sales, "there could be hiccups along the way" in the undertaking of such a dramatic shift in the business, Rambourg said.  

“Nike’s management mentioned the current U.S. disruption should have a discreet short-term impact in the greater scheme of things and they could be right."

The adidas AG (ADR) ADDYY premium to Nike on a forward PE basis has now "vanished completely," the analyst said.

“While we do not necessarily believe that the adidas stock should be rated relative to Nike, we do see this as compelling given the gap of growth currently between the two companies.”

Shares of Nike traded relatively flat following the downgrade, falling just .15 percent at last check to $59.54.

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