Stifel: Nike 'Uniquely Positioned' In Shift To Direct-To-Consumer

Analysts continue to reiterate the sentiment that Nike Inc NKE is nearing a North American inflection point. 

The Analyst 

Stifel’s Jim Duffy reiterated a Buy rating on Nike and raised the price target from $80 to $87.

The Thesis

After three consecutive quarters of revenue declines in North America and eight quarters of gross margin contraction, the analyst said he expects Nike to finally hit an inflection point in the fourth quarter. (See Duffy's track record here.) 

“While North American fundamentals are challenged near-term, we view the athletic category as having long-duration global secular and structural tailwinds. We see NIKE uniquely positioned to execute to a more direct model, which we expect translates to growth, margin improvement and strengthening ROIC longer-term,” the analyst said. 

The Nike fourth-quarter earnings report set for June 28 comes after a management shakeup and a doubling down on "inclusivity, respect and empowerment" at the apparel maker. 

“We are encouraged that the company is embracing change; both culturally and with progressive go-to-market strategies,” he said.

While a stronger dollar led the analyst to lower fiscal 2019 and 2020 revenue estimates, the focus is on the future, Duffy said. The analyst introduced a fiscal 2021 revenue estimate of $44.2 billion. 

The market has finally digested Nike’s corporate culture issues, and investor focus will remain on the fundamentals, Duffy said. U.S. channel partner inventory is its healthiest state since prior to the Sports Authority bankruptcy in 2016, and fierce competition from adidas AG (ADR) ADDYY is starting to ease, the analyst said. 

“The clean channel and easing competitive momentum from adidas creates a favorable environment for NIKE’s strong slate of new product to succeed," Duffy said. "Our North America checks show healthy consumer spending, enduring demand for athletic footwear and apparel procut and encouraging indications on consumer appetite for new NIKE platforms."

Price Action

Nike shares were trading up 0.44 percent at $74.59 at the time of publication Tuesday afternoon. 

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