Nike stock is down 6.3% year to date, after rising 55.6% in the past 12 months.
Drew Angerer/Getty ImagesNike stock was falling on Tuesday after a downgrade from Citigroup, which argues that near-term headwinds could hurt the athletic giant.
Shares of Nike (ticker: NKE) dropped 3.3%, to $128.25, in early trading. The stock is down 6.3% year to date, after rising 55.6% in the past 12 months.
Analyst Paul Lejuez cut his rating to Neutral from Buy, and lowered his target price to $140 from $160. Though still confident in the company’s long-term growth outlook, he’s concerned that margins could be lower than expected in fiscal 2022 as well as a slowdown now in China.
Nike is one of many Western companies facing boycott calls after a number of nations imposed sanctions on China over alleged human-rights abuses in the cotton-producing region of Xinjiang. China denies the claims, but there has been a global outcry about increasing evidence of torture, forced labor, and sexual abuse of more than a million people, mostly the ethnic minority Uighurs, in work camps.
Other analysts have argued that the issue isn’t reason enough to sell the stock.
Yet even setting aside the Xinjiang controversy, as well as Chinese wholesale accounts seeing a slowdown, Lejuez points out other potential headwinds for the stock.
The analyst, for example, notes that between supply-chain delays and ongoing store closures in some regions, inventory may remain elevated. That, in turn, could lead to higher levels of discounting.
Lejuez also sees Nike potentially having to spend more to improve its brand status and juice demand, and these higher costs could weigh on margins in fiscal 2022, potentially causing them to come in below expectations.
These potential challenges are coming at a time when Nike is the second most crowded retail stock, and there are plenty of new entrants to the activewear category that pilfer some market share.
Trading around 25 times consensus estimates for earnings before interest, taxes, depreciation, and amortization (EBIDTA) for fiscal 2022, Nike’s valuation is hovering near all-time highs, and ultimately Lejuez sees better alternatives to play a recovery.
Write to Teresa Rivas at teresa.rivas@barrons.com
April 20, 2021 at 09:29PM
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