Nike Inc (NYSE: NKE) shares were hit hard
Wednesday after a sell-side analyst said the company's valuation feels rich after recently striking all-time
highs.
The Analyst
Cowen analyst John Kernan maintained a Market Perform rating on
Nike with a $81 price target.
The Thesis
Nike’s 30th anniversary of the "Just Do It" campaign
that prominently featured Colin Kaepernick resonated strongly with 18-34-year-old men and Nike consumers that spend $300 or
more annually, but it may have alienated Nike consumers earnings over $100,000 per year, Kernan said. (See his track record
here.)
Twenty-five percent of men and women in the high-income demographic said they were slightly less; significantly less; or
will not buy Nike products any more, according to a Cowen Consumer Tracker Survey.
Among male respondents, 36 percent said their first choice of a replacement brand is adidas AG (ADR) (OTC:
ADDYY) at 36 percent. With female respondents, the
replacement brand of choice was Under Armour Inc (NYSE: UAA) at 23 percent.
Still, Nike appears to be doubling down on its most loyal customers.
The apparel maker's recent acquisition of Zodiac is symbolic of the company’s strategy and focus on its most valuable customers
in an era where the brand faces an unprecedented
amount of competition in North America, Kernan said.
Although 37 percent of the U.S. population has purchased Nike in the past year, Kernan said 75 percent of Nike’s growth in
the next five years will be generated internationally. The analyst forecast that China will generate 45 percent of total
company EBIT growth.
“While NKE is one of the highest and most consistent return-on-capital business we have ever studied, the stock is fairly rich,”
the analyst said.
“P/E expansion to 31x from 21x in the span of 12 months keeps us sidelined on Nike.”
Price Action
Nike shares were down 5.72 percent at $75.84 at the time of publication Wednesday.
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Photo courtesy of Nike.
Latest Ratings for NKE
Date |
Firm |
Action |
From |
To |
Oct 2018 |
HSBC |
Downgrades |
Buy |
Hold |
Sep 2018 |
Bank of America |
Maintains |
Underperform |
Underperform |
Sep 2018 |
Jefferies |
Maintains |
Hold |
Hold |
View More Analyst Ratings for
NKE
View the Latest Analyst
Ratings
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