Nike Analysts On Muted Q4 Expectations: 'The Most Significant Impact From COVID-19'

With the COVID-19 pandemic clouding the outlook, consumer discretionary stocks such as Nike Inc NKE face an uncertian future. 

Nike is scheduled to release its fourth-quarter results Thursday, June 27 after the close.

The Nike Analysts: Baird analyst Jonathan Komp maintained a Neutral rating on Nike shares and upped the price target from $85 to $95.

Stifel analyst Jim Duffy maintained a Buy rating and $111 price target.

Muted Expectations For Nike's Q4: The store closures for most of the fourth quarter, except in China and Korea, suggest there is likely to be minimal upside relative to estimates, Baird analyst Komp said in a Thursday note. 

The muted expectations are supported by the company's guidance for flat revenue in Greater China, the analyst said.

Nike should have lower SG&A spending thanks to greater cost containment and the shift of sports/Olympics spending, he said. 

Komp is modeling a 26% year-over-year decline in revenue, one percentage point better than the Street, and a 125-basis-point gross margin contraction versus the 190-basis-point figure expected by the Street. 

SG&A is expected to fall 5%, leading to an EPS of 7 cents, versus the consensus estimate of 11 cents, the analyst said. 

Stifel Sees Q4 As Nike's Coronavirus Bottom: Stifel analyst Duffy said he is directionally comfortable with his below-consensus estimates that call for revenue of $7.68 billion, representing a 24.6% year-over-year drop, and break-even EPS.

The analyst expects a 220-basis-point gross margin contraction.

"F4Q20 (May) should see the most significant impact from COVID-19 disruption setting the stage for sequential improvement across FY21," he said. 

The analyst expects Nike's results to showcase its digital leadership and market share gains, factors supporting the market's view that NKE will be a multiyear winner.

See Also: Analyst Talks Nike's Leadership Shuffle

What's On The Radar For Nike Investors: Investors are likely to focus on a subset of variables and not the revenue and EPS headline results, Duffy said.

The specifics are the fourth-quarter performance and quarter-to-date trajectory in China; e-commerce growth and execution; consumer adoption of the app ecosystem; and strategies to manage inventory imbalances, the analyst said. 

Duffy said he expects the company to shed some light on at least directional guardrails for fiscal year 2021 financials. 

Emphasizing the importance of digital sales, Baird's Komp said the company's digital sales accelerated more than 100% in late March ahead of the pandemic. The analyst sees further benefits accruing for this segment due to an acceleration in industrywide digital trends since mid-April.

With Komp expecting categories tied to outdoor activity and fitness benefiting from behavioral shifts, he is of the view that Nike is positioned to maintain share gains, given a healthy lineup of product such as AF1, Jordan, Next%, Space Hippie and marketing.

NKE Price Action: Nike shares are down about 2% year-to-date. After declining to a low of $60 in mid-March in an across-the-board, COVID-19-induced sell-off, the stock has recovered nicely.

At last check, Nike shares were down 1.2% at $97.30. 

Photo courtesy of Nike.