Is Nike's Stock Still A Buy At All-Time Highs? The Street Debates

Nike Inc NKE reported fiscal second-quarter results that came in better-than-expected and sent shares running to new all-time highs.

The Analysts: Needham analyst Rick Patel maintains a Buy rating on Nike's stock with a price target lifted from $149 to $165.

Raymond James analyst Matthew McClintock maintains an Outperform rating on Nike with a price target lifted from $140 to $155.

KeyBanc Capital Markets analyst Matthew DeGulis maintains an Overweight rating on Nike with a $174 price target.

Morgan Stanley analyst Kimberly Greenberger maintains an Overweight rating on Nike with a price target lifted from $165 to $176.

Related Link: 10 Biggest Price Target Changes For Monday

Quarter Highlights: Nike reported EPS of 78 cents in the fiscal quarter versus the Street's estimate of 63 cents while sales of $11.24 billion were 2.2% better than expected.

Patel noted North America sales growth was in line with expectations at 0.6% year-over-year to $4 billion as digital sales growth of more than 100% more than offset weakness in other areas like the transition of the NFL license business to Fanatics. Total digital sales were up 80% in the quarter.

Sales in China were up 24% (19% ex-fx) versus expectations of 9% growth. This marks the strongest quarter of growth since November 2018 and is attributed to strong performance during Singles Day along with rising traffic in stores.

Digital Leader: Nike's investments in its digital business coupled with strong brand momentum and financial flexibility should result in continued market share gains after fiscal second-quarter digital sales growth "far exceeded expectations," McClintock wrote in a note.

The company's momentum could translate to gross margin gains moving forward although it was down 90 basis points in the quarter at 43.1%. A full-price selling environment is likely to resume in the back half of 2021 from strong demand. Also, Nike already spent $220 million of the $315 million in reorganization costs.

A Look At International: DeGulis said Nike showed "impressive" growth in the quarter as sales were up 16.6% in EMEA as management's Express Lane strategy allows it to carry lower inventory levels and replenish stock levels quickly. Encouragingly, the wholesale category is showing 6% in the quarter and the digital business was up nearly 100% in the quarter.

Greater China sales growth of 24.4% was driven by more than $500 million sales on Singles Day and the strength of the Nike and Jordan brands.

"Through digital & China growth, speed initiatives, and marketing expense leverage, we think NKE is in the early stages of a multi-year margin expansion cycle," the analyst wrote.

Underestimated Earnings Growth Story: Greenberger said Nike's strong earnings report should serve as confirmation of the company's long-term revenue, margin, and EPS growth profile. Recent momentum makes the case that the research firm's revised EPS estimate of $2.82 (from $2.60) is still conservative.

The company beat revenue estimates by $1.6 billion and $700 million in the fiscal first quarter and second quarter, respectively, for a combined first half of the year beat of $2.3 billion. If the company continues to generate high-single-digit year-over-year growth rates there could be as much as $2 billion in upside potential to the firm's 2025 revenue estimate of $60 billion, or as much as $3 billion upside versus the Street's $59 billion estimates.

NKE Price Action: Shares of Nike were trading higher by 3.8% to $144.62 a publication time. The stock earlier hit a new all-time high of $147.91.