Nike Has Regained Its Footing, Canaccord Says In Upgrade Ahead Of Q1 Print

Nike Inc NKE received an upgrade and price target increase from Canaccord Genuity on Tuesday that comes on the heels of a price target increase from a Wedbush analyst. The footwear maker reports first-quarter earnings Sept. 25. 

The Analyst

Analyst Camilo Lyon upgraded Nike from Hold to Buy and increased the price target from $78 to $95.

The Thesis

Nike is slowly finding its feet after two years of a soft product cycle that led to an inventory pile-up, higher discounting, margin compression and market share declines, Lyon said in a Tuesday note. (See his track record here.) 

Since the announcement of the new "Triple Double" strategy, Nike has accelerated product innovation and marquee collaborations, the analyst said.

Nike has increased its focus on consumer experience and embarked on speed initiatives, Lyon said. 

All of the above will take time to reflect on sales and margins in a meaningful way, but should produce positive gross margin gains in the long run, he said. 

The gross margin erosion Nike experienced over the past two-and-a-half years is set to reverse, likely helping it to recapture at least 100 basis points of promotionally driven margin degradation and direct-to-consumer mix and more than 100 basis of production cost gains, according to Canaccord. 

"In aggregate, we see newly introduced platforms coupled with forthcoming innovations sparking the next multiyear run for NKE," Lyon said. 

Nike is poised to sustain mid-teens EPS growth for the next three years, pointing to $4 in earnings power in 2021, Lyon said.

The Price Target

Nike shares have gained about 32 percent year-to-date. The stock was up 1.12 percent at $83.04 at the time of publication Tuesday. 

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Photo courtesy of Nike.