Shoppers in Beijing.
Kevin Frayer/Getty ImagesShares of Nike have fallen in the past month, hurt by worries about a boycott in the key Chinese market. Stifel says that is a short-term concern for the athletic giant, but not enough to threaten future growth.
Nike (NKE) and other Western brands have faced calls for boycotts in China, in retaliation against sanctions imposed by the U.S., U.K, Canada, and the European Union over alleged human-rights abuses in Xinjiang. While China denies these claims, there has been a global outcry about increasing evidence of torture, forced labor, and sexual abuse of more than one million people, mostly the ethnic minority Uighurs, in work camps in the region.
Analyst Jim Duffy reiterated a Buy rating and $168 price target on Nike Friday after speaking with Shanghai-based analysts who noted that the company is facing a backlash from Chinese consumers on social media and in stores. That will lead to “a non-trivial impact to revenue,” in the short term, he said, but predicted it will pass.
“While increasingly mindful of risk to the China business from any escalating geopolitical tensions, we continue to view Nike as a solid core holding for large cap growth investors,” he wrote. China accounts for about 20% of Nike’s business and is increasingly expected to be a source of future growth for the company.
Duffy noted that Nike records more sales online in China than in other nations, which could offset some pressure from dwindling foot traffic in stores, but he does think the Xinjiang-related backlash will hurt the top line. For fiscal 2021, he lowered his estimates for revenues and earnings per share to $43.4 billion and $3.23, respectively, from $43.5 billion and $3.28. For fiscal 2022, he lowered his revenue estimate to $48.4 billion and his EPS estimate to $4.18, from $48.5 billion and $4.20, respectively.
That said he sees the company rebounding, even if geopolitical tensions remain a concern in the next few years. “We believe Nike understands the China consumer and political landscape well, has historically been appropriately culturally sensitive, and see the Nike brand on durable footing in the China marketplace.”
Other analysts have similarly argued that Nike will be able to navigate the storm.
Nike stock was up 0.2% to $133.97 in early trading. The shares are down 5.5% year to date after rising 48.7% in the past 12 months.
Write to editors@barrons.com
April 16, 2021 at 08:19PM
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Why Nike's China Troubles Won't Derail the Stock - Barron's
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