Joe Raedle
Nike (NYSE:NKE) is understandably getting attention, both positive and negative, from analysts and research firms ahead of its Q3 results on Tuesday.
While shares of the Oregon-based footwear giant have run over 15% higher in the 6 months preceding its earnings report, the stock is essentially flat thus far in 2023.
According to Seeking Alpha surveys, analysts have shifted around estimates frequently since the close of 2022. Per the data, trimmed EPS expectations 21 times while revising revenue estimates upward at the same rate.
Retail foot traffic tracker Placer.ai indicated that visits to Nike stores have pivoted in a positive direction to start 2023 in a report published in the week ahead of the print. February visits to Nike and Nike Factory Stores rose 5.97%, building upon a double-digit average jump in December and January, lapping the Omicron-impacted early turn of the year into 2022. The rise in visits aso reflected a sharp rebound from about a 5% drop in traffic in November 2022 as compared to 2021.
However, the research noted that Nike has been offering steep discounts in recent months to clear inventory, a factor that “likely contributed to the significant [year over year] visit spikes.” The persistent promotional activity suggests margins may remain under pressure, in line with analysts’ estimate adjustments.
Ahead of the results, the consensus EPS estimate stands at $0.54, reflecting the expectation of a nearly 38% year over year decline. Revenue, meanwhile, is expected to increase about a 5.6% jump to $11.48B. Nike has risen about EPS estimates in 8 consecutive quarters, missing revenue expectations only twice in that span.
For Tuesday’s report, Baird analyst Jonathan Komp expects a beat on the top and bottom lines. He indicated that the stock remains “an attractive holding in the current environment,” especially if upbeat guidance can be offered.
“With a moderate beat/raise likely already embedded, initial F2024E guidance commentary should drive sentiment, and we anticipate potentially some revenue overhang, but stronger margin/earnings recovery potential relative to consensus,” he told clients. “While we are maintaining conservative model projections, NKE’s positive brand momentum, high operating margin, and strong competitive positioning justify current valuation amid an uncertain operating environment.”
Komp maintained an Outperform rating and a $130 price target on the stock. He has maintained this outlook on the apparel and footwear manufacturer since March 2021.
On the other end of the spectrum, Redburn believes the stock is destined to disappoint as an elevated valuation places the stock in a precarious position. As such, the stock was assigned a Sell rating and a $100 price target, suggesting notable downside in the year ahead.
“Great brands are not always great equities to own,” the firm’s analysts advised.
The team noted that consensus sales growth expectations “hinge on a sharp inflection in Greater China” that is less than a sure thing in their view. EBIT margin is also expected to disappoint as a rebound takes longer to materialize than many analysts expect.
The Seeking Alpha Quant team concurs with the valuation concerns cited by Redburn as well. Per the team’s analysis, the high marks for profitability are balanced by an “F” grade on valuation and a D+ for growth. A Hold rating is recommended by the Quant team.
Read more on the earnings slate for the week ahead.
