Morgan Stanley Calls Nike's Analyst Day 'Very Bullish,' Maintained As Top Pick

• Shares of Nike, Inc. NKE have risen 29.89 percent year to date to reach a high of $126.43 on October 12.
• Morgan Stanley’s Jay Sole has maintained an Overweight rating on the company.
• Nike’s Analyst Day was better than expected. While maintaining the company as Morgan Stanley’s Top Pick, Sole said that the stock could have 40 percent upside potential.

According to the Morgan Stanley report, the new “FY20 guidance showed NKE’s accelerated EPS growth rate will likely last longer than previously thought.” Analyst Jay Sole believes that the company’s growth prospects justifies the premium that the stock is currently trading at.

The company now expects its mid-teens EPS growth to extend till FY2020, from the earlier FY2017, which is higher than the estimates. Nike also expects its e-commerce sales to grow to $7 billion in FY2020, from the about $1.2 billion at present.

Sole believes that this eComm growth shows that the company’s “digital strategy is as compelling as any rival's, if not more so.” In addition, Nike’s guidance of FY2020 sales of $50 billion was meaningfully ahead of the estimate of $44 billion.

“Nike sees a major global market opportunity, especially in China and emerging markets. We strongly concur,” Sole said, while adding that the company’s “very large and continual investments in innovation and marketing are very hard for peers to compete with.”

Moreover, the company expects to grow its direct-to-consumer business from the current $6.6 billion to $16 billion, which Sole mentioned was the “big surprise.”

Sole also mentioned that Morgan Stanley’s global industry analysis implied that Nike’s high sales growth rates “could last well beyond 2020,” while the ongoing manufacturing “revolution” at the company could potentially drivel cost savings worth $1 billion from waste reduction alone.