Nike Analysts Bullish Following Earnings Beat: 'Long-Awaited, Structurally Higher Margins'

Nike Inc NKE shares traded higher by 10% on Wednesday in a down day for stocks after the company reported a huge surge in online sales in the fiscal first quarter and said trends in China are improving.

On Tuesday afternoon, Nike reported first-quarter EPS of 95 cents on revenue of $10.59 billion. Both numbers topped consensus analyst estimates of 47 cents and $9.15 billion, respectively. Revenue was down 0.6% from a year ago.

However, Nike’s online sales revenue soared 82% in the first quarter. The company also said 6% sales growth in China helped offset a 2% sales decline in North America.

See Also: Nike Reports Q1 Earnings Beat, Digital Sales Up 82% YoY

Stronger Post-COVID: Wells Fargo analyst Tom Nikic said Nike is the clear MVP of athletic apparel.

“With consumers focusing more on comfort (aiding the Sportswear category) and health/wellness (aiding performance categories), as well as brands that have robust digital platforms (such as Nike), we believe this company is very well-positioned for a post-COVID world,” Nikic wrote in a note.

Needham analyst Rik Patel said Nike’s digital transition is happening faster than many investors had anticipated.

“Covid has accelerated secular shifts towards digital commerce across the industry and the impact on Nike has been even more pronounced given its strategy to emphasize Direct channels of distribution,” Patel wrote.

Morgan Stanley analyst Kimberly Greenberger said Nike’s rapid direct-to-consumer growth suggests the company could improve its margins significantly in the coming quarters.

“NKE’s stunning 1Q21 snapback confirms it is one of the few companies in our coverage whose business model, TAM, and margin profile look better positioned post-COVID-19,” Greenberger wrote.

Improving Margins: Raymond James analyst Matthew McClintock said a 15% decline in inventory levels was an under-the-radar improvement in the quarter.

“Although there may be pressure on gross margin in the near-term, we believe this will be alleviated in FY21 since NKE earns 1,000 bp higher on gross margin for digital orders compared to wholesale shipments,” McClintock wrote.

Credit Suisse analyst Michael Binetti said Nike is well on the path to structurally higher margins in the long-term.

“We think the F1Q update had enough NT momentum—plus hints for long-awaited, structurally higher margins post-COVID—to maintain recent stock momentum,” Binetti wrote.

BTIG analyst Camilo Lyon said Nike’s guidance of full-year revenue growth in the low single-digits to high single-digits is an improvement over previous language of “flat to up.”

“Taken together, we believe NKE's renewed focus on driving digital efficiencies throughout all aspects of the business (product creation, demand creation, supply chain, inventory management, customer engagement/service) will result in a business that can generate high teens EBIT margins over the next 3-5 years,” Lyon wrote.

Gaining Market Share: Piper Sandler analyst Erinn Murphy said Nike’s women’s business is generating impressive growth.

“Women's apparel was up ~200%, assisted by the rollouts of the out Nike ‘M’ (dedicated maternity line) and its Yoga line,” Murphy wrote.

Bank of America analyst Robert Ohmes said investors should expect a strong second half of fiscal 2021 from Nike as the company continues to gain global market share.

“We expect an acceleration in revenue to +27% in F2H as supply constraints ease and as NKE begins to lap COVID-19 disruption,” Ohmes wrote.

See Also: Why Athletic Apparel Stocks Are Trading Higher Today

NKE Ratings And Price Targets:

• Wells Fargo has an Overweight rating and $135 target.
• Raymond James has an Outperform rating and $140 target.
• Piper Sandler has an Overweight rating and $148 target.
• Needham has a Buy rating and $149 target.
• Morgan Stanley has an Overweight rating and $152 target.
• Credit Suisse has an Outperform rating and $154 target.
• BTIG has a Buy rating and $152 target.
• Bank of America has a Buy rating and $150 target.

Nike's stock traded around $128.89 at the time of publication.