Nike stock has more than doubled in the past 12 months, but is off 2.7% year to date.
Drew Angerer/Getty ImagesNike shares fell after the footwear maker’s most recent fiscal-third quarter results, but UBS argues that despite a triple-digit rally in the past year, the stock can still grow more.
Analyst Jay Sole reiterated a Buy rating and $183 price target Monday. He noted that Nike (NKE) remains his top pick for 2021, in part for its “exceptional growth outlook.”
Investors may have been taken aback by the company’s guidance, but Sole argues that Nike’s much better-than-expected earnings per share were more compelling. He also highlights that gross margins increased in the quarter ahead of company expectations, and that its EBIT—earnings before interest and taxes—margin was 60 basis points higher than any third-quarter EBIT margins in the past decade.
While margins may not remain quite as robust, according to its forecast, Sole contends that “the factors that drove Nike’s big third-quarter margin beat are structural and just starting to play out.”
Moreover, the quarter showed Nike increasing its earnings by nearly a third from its pre-pandemic 2019 levels—an accomplishment in itself, but more impressive considering many of its European stores remain closed and it dealt with supply-chain issues.
Ultimately, Sole predicts that Nike will come in ahead of expectations when it reports fiscal fourth-quarter results in June, but warns the company could provide conservative guidance for fiscal 2022, potentially hampering the stock. Yet that means the September results could be a big catalyst for Nike, as it appears poised to be a beat-and-raise quarter, the first with no Covid-19 impact. “This will enable Nike to generate surprisingly strong growth and allow it to raise its fiscal 2022 guidance,” he wrote. His earnings per-share estimate of $4.25 for that year is 9% above consensus.
Nike is edging 0.1% higher at recent check, to $137.57. The shares have rallied 119.1% in the past 12 months, but are off 2.7% year to date.
Write to Teresa Rivas at teresa.rivas@barrons.com
March 22, 2021 at 10:22PM
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Nike Stock Hasn't Finished Its Run Yet, Analyst Says - Barron's
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