Nike stands to benefit as sports resume after the pandemic.
Catherine Ivill/Getty ImagesGeopolitical tensions are a clear problem for Nike, especially the Western effort to pressure China over alleged human-rights abuses in Xinjiang Province, but Wall Street is growing increasingly confident about the outlook for the athletic-gear company.
Jefferies joined the chorus on Tuesday, with an upgrade of the stock to Buy from Hold. Analyst Randal Konik raised his target for the stock price to $192 from $140, 40% above its current level, citing multiple factors that could push the shares out of their recent slump.
In premarket trading, the stock was up 0.4% to $137. It has gained 50% in the past 12 months but has fallen 3.6% year to date.
First, Konik said, the “sportswear market [is] on fire, and showing no signs of slowing,” thanks to the increased interest in health and wellness that arose during the pandemic. More people are dressing casually than ever, and the return of sports, along with a renewed focus on outdoor activities, should continue to fuel growth for years to come.
Konik said he is also upbeat about Nike’s execution on its digitally led, direct-to-consumer strategy, which he believes is improving brand awareness. It is “resonating particularly strongly in younger generations that favor fashion, speed and innovation,” he wrote.
Moreover, while China has been a headwind for Nike lately—it is among Western companies facing boycott calls after the U.S., European Union, and other nations sanctioned China for alleged human rights abuses—he believes that it is still a “massive growth opportunity.” China will still be the fastest-growing market for Nike in the years ahead, he wrote, noting it is also the region where Nike’s margins are highest.
Recent diplomatic developments will prove to be just a short-term distraction, Konik predicted.
Plenty of other analysts have also argued that Nike’s China woes won’t derail the stock, although they have taken different approaches. While some have gotten increasingly bullish on the shares, others are tempering their expectations, even as they continue to favor the stock.
Barron’s recently argued that the selloff represents a good opportunity to buy the stock, given the factors working in its favor.
Write to Teresa Rivas at teresa.rivas@barrons.com
May 11, 2021 at 09:00PM
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