Nike Upgraded to Buy as Challenging Market Could 'Enhance Global Market Share'

Nike is upgraded to buy, a day ahead of earnings from the athletic apparel giant.
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Nike  (NKE ) - Get Reportwas upgraded Monday, one day before the company is scheduled to report fiscal third-quarter earnings, as the athletic apparel retailer grapples with store closings as a result of the coronavirus pandemic.

Shares of the Beaverton, Oregon-based company were off 1.7% to $66.30 in trading Monday.

Nike is expected by analysts to report earnings of 58 cents a share on $9.87 billion in revenue during its fiscal third quarter.

Bank of America analyst Robert Ohmes upgraded Nike to buy from neutral with a price target of $85, down from $105, saying "we believe a challenging environment could enhance NKE's global market share gains."

"We believe NKE remains the key brand that wholesale customers shift orders to in times of distress and should also benefit from its superior sourcing capabilities, with a vertically integrated supply chain and more consolidated supplier base," Ohmes said in a note to investors.

Ohmes said he made significant cuts to Nike's revenue outlook, including a new forecast for a 46% sales decline in the fourth quarter.

Earlier this month, the company shuttered all its Nike-owned stores in several countries around the world, including in the United States, Canada, Western Europe, Australia, and New Zealand from March 16 through March 27.

Erinn Murphy, an analyst with Piper Sandler, lowered her full-year 2020 estimate to $2.42 from $2.65 a share and her full-year 2021 estimate to $2.74 from $3.20.

"We estimate North America, Western Europe & ANZ could represent 65% of the Nike's global sales," Murphy wrote in a note to clients. "As such, a 12-day impact on a 90-day quarter would be $170M in revenue. At a 50% detrimental margin (tax effected/share count), this would be a $0.05 hit to Q4 EPS."

Mitch Kummetz from Pivotal Research reiterated his buy rating on Nike, with a price target of $78.

"Aside from Covid-19, we continue to believe that NKE is well positioned relative to the competition," Kummetz said. "The data/feedback on NKE’s brand portfolio suggests continued market share gains. But this is of little consolation in the interim."

Kummetz said the market in China has begun to rebound, "albeit conditions are still far from normal."

"While China is getting better, much of the rest of the world is getting worse," Kummetz said.