Analysts Upgrade Nike On $50B Revenue Potential, Direct-To-Consumer Growth

Nike Inc NKE may be stealing market share back from adidas AG (ADR) ADDYY, according to a new report from Susquehanna. 

Analyst: Nike On Track For $50B In Revenue By 2023

Susquehanna's Sam Poser upgraded Nike from Neutral to Positive and raised the price target from $78 to $93.

Improved product offerings and product flow are leading Nike to market share gains from adidas and athletic specialty retailers Foot Locker, Inc. FL Finish Line and Hibbett Sports, Inc. HIBB, as well as the family footwear channel, Poser said in the upgrade note.

“Based on our proprietary checks with retailers, and with some of Nike’s competitors, it has become clear, after some concern on our end, that Nike is beginning to balance scale and scarcity well, across the spectrum of retail partners and across merchandise categories,” the analyst said. 

Better retailers are beginning to recognize that Nike’s innovative products are taking share from Adidas, which is rapidly decelerating, Poser said. Adidas' brand reported 12-percent sales growth in its second-quarter report in early August. 

Nike is on pace to hit $50 billion in revenue by 2023, the analyst said; the company initially set the target in 2015 to be completed by 2020.

Nike apparel is gaining significant momentum in the lifestyle and performance categories despite the recent resurgence of Champion and Fila, Poser said. Nike basketball sell-through rates are increasing, and new signature shoes from Kyrie Irving, Kevin Durant, Kobe Bryant and LeBron James are driving positive year-over-year results.

“We contend that the clean inventories in the marketplace, the growing DTC business and new innovative product will drive more full-price selling than guidance infers, primarily driven by the improvement in the North American market."

Piper Jaffray: Direct-To-Consumer Is Nike's Growth Driver 

Piper Jaffray analyst Erinn Murphy upgraded Nike from Neutral to Overweight and raised the price target from $72 to $93.

While the last five years have been marked by outsized singular brand leadership, Murphy said she expects future years to be more balanced competitively. Over the past five years, Nike and adidas have driven greater than 40 percent of incremental category growth across North America, Western Europe and China, she said. 

Both brands will contribute more evenly to overall category growth moving forward — and Nike does not need to dominate the athletic narrative to drive strong growth, Murphy said. For Nike, it's direct-to-consumer growth that roughly doubles revenue per unit, the analyst said. 

Athletic brands, given their global scale and awareness, have much less of a chance “being disintermediated by Amazon.com, Inc. AMZN than other consumer categories," Murphy said. 

Price Action:

Nike shares were trading up more than 3 percent to $82.18 at the time of publication Monday. 

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Photo courtesy of Nike.