Nike stock has been in a slump this year, hurt in part by diplomatic tensions over China’s alleged human rights abuses. Now, Barclays is concerned that the row will hurt sales—most likely in the near term.
Share of Nike were down 0.5% to $137.19 in afternoon trading Monday. The stock has slipped 2.8% year to date, but is up 51.3% in the past 12 months.
On Monday, analyst Adrienne Yih reiterated an Overweight rating and lowered her price target to $165 from $174. The move comes as she lowered her sales estimates for greater China. Nike is one of a handful of Western brands that have faced boycotts after the U.S. and European Union imposed sanctions on China related to the detention of mostly ethnic Uighurs in the Xinjiang region.
Yih had modeled Nike’s China sales to climb 35%, to $2.28 billion; she now expects sales to come in at $1.8 billion, with April being the worst month—sales down 10% year over year—and flat sales in May.
The analyst noted “there may be early signs of a slow and measured recovery process,” based on commentary from Adidas’s (ADDYY) recent earnings call. Yet, how quickly this sales pressure will dissipate remains unclear, which also led her to lower her sales estimates for China in fiscal 2022, which begins this summer, to $8.9 billion from $9.4 billion. “While we hope this is a worst-case scenario, we choose to be conservative in the absence of clarity.”
Ultimately, however, Yih doesn’t think that there will be major long-term problems for Nike. Both Adidas and Puma (PUMSY) have noted that they’re seeing some stabilization, and “global western brands are important to the growth of consumerism in China in driving demand for global brands.” Without another major flare-up, she thinks that the worst of the situation may be behind Nike and already reflected in the stock.
“While signs are small, unless there is another politically charged flare-up, we believe the situation may be on an early path to recovery and the worst of sentiment may be reflected in shares,” she wrote.
Write to Teresa Rivas at teresa.rivas@barrons.com
May 11, 2021 at 02:30AM
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Nike Stock Can Keep Climbing Despite Diplomatic Tensions in China - Barron's
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