Cowen Says Nike Has The Edge On Adidas, But Both Stocks Have Upside Ahead

The battle between Nike Inc NKE and Adidas AG (ADR) ADDYY for sportswear supremacy remains one of the greatest rivalries in sports.

Amid the fierce brand competition, a new report from Cowen outlines a path higher for both stocks while suggesting that Nike maintains the upper hand.

The Analyst

Cowen analyst John Kernan maintains an Outperform rating on Adidas and with a 225-euro ($254.17) price target.

The analyst maintains an Outperform rating on Nike and raised his price target to $92.

The Thesis

Nike is accelerating, while adidas is using its Yeezy line to boost growth in a promotional North American market, Kernan said in a Monday note. 

NMD Is Slowing For Adidas; Yeezy, Ultraboost Should Sustain Growth

Adidas’ NMD franchise is tempered, and more innovation is being undertaken to close a valuation discount to Nike that has reached its highest in 10 years, the analyst said. 

Still, the Ultraboost and Yeezy franchise momentum should drive high-single digit revenue growth in the fourth quarter, and both franchises should sustain growth in North American wholesale, Kernan said.

Adidas is set to report its fourth-quarter earnings Wednesday. 

Adidas: 300-Euro Stock In Sight? 

Adidas stock is cheap given its potential, Kernan said. The expansion of its Parley apparel line is another large-scale 2019 activation, as are more speed-enabled products that will support higher price points, he said. 

“We do not think it is out of the question that management holds an investor day in the next 12 months to update targets as we approach 2020 — having already raised the 2020 operating margin target to 11.5 percent." 

Cowen projects a long-term EPS of 13-euros-plus and a 300-euro-plus stock price. 

Sneakerhead Hype, Instagram Driving The Market

Cowen predicts North American revenues for Nike will grow 9 percent, driven equally by apparel and footwear. Recent channel checks from Foot Locker, Inc. FL give the firm confidence Nike will sustain the momentum from its big second-quarter earnings beat, Kernan said. 

Nike continues to see significant momentum and high sell-throughs across Air Max 270, VaporMax Flyknit, Jordan and other Air franchises, the analyst said. Adidas' segmentation needs to evolve within certain franchises, “as high-end boutique partners are concerned over the pace of promotions in mid-tier channels," he said. 

“The entire market has become very ‘drop’-driven, with perception being driven by Instagram and [the] strength in resale market. Nike execution around managing its massive archive of product and relaunching with tightly controlled supply-demand balance continues to drive consumer engagement and full price sell through." 

On the other hand, the analyst says many Adidas franchises look promotional and less competitive. The company’s 4D franchises continue to create buzz on a smaller scale given their limited distribution, and Yeezy is showing high sell-through in the digital space.

The analyst said it will be critical to keep Yeezy franchise at full price and not push too heavily into North American wholesale partners.

Adidas Basketball: Zion Coming?

Cowen also suspects that Yeezy will make a large scale push into basketball in 2019 to compete with Nike and Puma.

“There is also buzz that adidas is making a major push for Zion Williamson," Kernan said. 

Price Action

Nike shares were down 0.43 percent at the close Tuesday, while adidas' over-the-counter stock was down 0.45 percent.

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