After getting pounded following a sub-par (at least by Nike standards) quarter, Goldman Sachs thinks Nike stock is a slam dunk.
Analyst Kate McShane is out Tuesday with an initiation of coverage on Nike (NKE) at Buy and a $172 price target.
McShane said her bullish call reflects, “i) a healthy industry backdrop with a company-specific continued focus on innovation to drive growth; ii) room to expand its direct to consumer initiative which should drive higher gross margins over time; iii) a high cash balance which should enable additional investment and capital return to shareholders; and iv) our valuation points to more share price upside, especially after recent pull back on sourcing concerns, which we think are transitory and likely priced in.”
Shares of the Dow component are up 7.6% year-to-date, compared to an 11% gain for the broader index. The stock is down 8% in the past month in the wake of Nike’s lackluster earnings on Sept. 23.
The sneaker and apparel giant had a rare quarterly sales miss, owing to supply chain bottlenecks hurting the flow of merchandise. Nike executives warned that supply chain issues will impact the balance of its fiscal year.
Nike slashed its full-year sales outlook to a mid-single digit percentage from a prior outlook of low double-digit growth.
“We are not immune to the global supply chain headwinds that are challenging the manufacture and movement of product around the world,” conceded Nike CFO Matt Friend to analysts on a conference call.
McShane contends now is the time to pull the trigger on Nike amid such depressed market sentiment on the stock.
“While the stock is currently trading at a slight premium to where it has been relative to the market on average over a 1, 2, 3, and 5-year time period. (the stock is +6% year-to-date, vs. the S&P at +16% year-to-date), we think there could still be upside to the stock as Nike will likely benefit from more customers focusing on wellness, a likely increased casualization of fashion trends post the pandemic, continued execution of the company’s differentiated retail strategy which should drive stronger sales and margins, the leveraging of its rich customer data and suite of apps to drive membership and demand globally, and as supply/demand remains extremely tight; limiting promotions,” McShane explained.
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