Nike Appears To Be Finally Turning The Corner; China Spurs Growth

Nike Inc NKE's turnaround efforts may be starting to take hold.

Shares have rallied 15 percent over the past month and the company is receiving a notable upgrade heading into its second-quarter report, which is scheduled for a Dec. 21 release.

The Analyst

John Staszak of Argus upgraded Nike from Hold to Buy with a $75 price target.

The Thesis

A strengthening U.S. economy, strong sales and China are encouraging signs for Nike, a brand whose sentiment has suffered some uncharacteristic lows over the past year.

Retailers with weak sales are turning to Nike products to boost sales and increase customer traffic, giving the company more bargaining power as a supplier, Staszak said. (See Staszak's track record here.)

Nike has been able to raise prices alongside increasing sales in apparel and footwear, particularly in the emerging markets of China and Europe, the Middle East and Africa, leading Argus to upgrade the stock, the analyst said.

“Although the industry remains fiercely competitive, we expect the company to build on its dominant position through its globally recognized brand, innovative products, economies of scale and rapid growth in emerging markets," Staszak said. “In the near term, we expect an accelerating U.S. economy and solid results in China to benefit earnings.”

Argus raised its fiscal 2018 and 2019 estimates from $2.46 to $2.50 in 2018 and from $2.78 to $2.80 in 2019. The raised estimates come on the basis of Nike's recent investments in company-owned stores and an accelerating e-commerce business that grew 19 percent in the last quarter and is expected to grow in the high teens for the next two years, Staszak said.