Nike investors are getting slightly more optimistic on an already sturdy outlook, after Goldman Sachs analysts upgraded the stock. But tariffs are scheduled to go into effect December 15 and this certainly wouldn’t be a positive for the stock.
Goldman Sachs analyst Alexandra Walvis upgraded the stock to buy from neutral Thursday and lifted her price target to $112 a share from $95. The stock rose 1.53% to $95.15.
Analysts cited momentum in China, as Real Money Stock of the Day Nike looks to be taking market share in an already exploding sportswear market in the region. Nike is using its digital and direct-to-consumer assets to drive that revenue, which is especially accretive to earnings, as the DTC business is higher margin than the traditional one.
But tariffs do go into effect on December 15. Tariffs have currently weighed on stocks in 2019, but investors have largely liked past that, as they’re cautiously optimistic a U.S. - China deal gets done. This has help power the S&P 500 to a year-to-date gain of 24.4%, with Nike an outperformer, gaining 25.5%.
Nike manufactures 18% of is product from China, which has already forced the company to contend with tariffs on its products coming into the U.S. from China. Nike is said by many analysts to have superior pricing power — and it has shown that on recent earnings reports — as its brand strength has taken off in the past few years.
This gives Nike flexibility to raise prices and protect gross margins when tariffs are applied. But any increase in price still has some impact on demand.
Fortunately, footwear has already been tariffed and this next round of tariffs doesn’t raise the trip rate from where it is currently. It adds to the dollar amount in goods tariffed. If additional footwear product is tariffed, that could prompt Nike to find ways to mitigate the headwind. And Nike analysts who have recently moved their estimates higher haven’t mentioned tariffs as a particular threat to earnings for the immediate.
Even if Nike isn’t impacted, the stock could be. A broad market sell-off, especially driven by trade tensions, would likely include a dip in Nike’s stock as well.