Nike Shares Upgraded to Buy and Price Target Boosted at UBS

Nike shares are higher after a UBS analyst upgraded the athletic-apparel maker to buy, citing business-model changes and investments in product innovation, supply chain and e-commerce.
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Shares of Nike (NKE) - Get Report were climbing after a UBS analyst upgraded the athletic-apparel maker to buy from neutral.

Analyst Jay Sole also increased his price target for the Beaverton, Ore., company to $136 a share from $103.

At last check Nike shares were 2.3% higher in the Monday premarket. They'd closed Friday at $96.30, off 1.9%.

Sole said in a note that he expects the stock's valuation to increase as investors begin to appreciate Nike's business-model changes and its investment in product innovation, supply chain and e-commerce.

Sole raised his five-year revenue growth forecast to 9% from 6.5% and earnings-growth outlook to 17% from 15%. 

He said his new Nike price target assumes a forward-earnings multiple of 37 times, which is in line with other top global consumer discretionary stocks.

Last week, Bloomberg reported the sportswear giant is being investigated by the U.S. Securities and Exchange Commission for making allegedly illegal payments to youth basketball players.

Bloomberg reported that the SEC probe was confirmed by a former Nike lawyer, Scott Wilson. The probe was declared in opening remarks by Howard Srebnick, who is representing Michael Avenatti in the attorney's trial for attempting to extort as much as $25 million from the company.

In December, Nike posted second-quarter earnings of 70 cents a share vs. 52 cents in the year-earlier quarter. The latest figure exceeded analysts’ consensus forecast, developed by FactSet, of 58 cents a share. 

Sales rose 10% to $10.32 billion against analysts’ estimates of $10.09 billion.

Gross margin widened 0.2 percentage point to 44%, missing analysts' estimates of 44.1% as higher product costs from tariffs partly offset gains.

Nike said the gross-margin miss was “primarily due to incremental tariffs in North America,” which raised the cost of goods sold and bit into profit.