Wall Street might currently be fully engrossed in the shenanigans happening in the banking world, but there are still interesting events going on elsewhere. After the market action comes to a close today (Tuesday, March 21), Nike (NKE) will step up to deliver its latest quarterly statement – for the fiscal third quarter of 2023 (February quarter).
When the sports apparel giant reported Q2 results in December, management highlighted the strong consumer demand seen in the run up to the holiday selling season and discussed its initiatives to strategically reduce excess inventories.
That said, management has effectively warned investors of the impact on gross margins that will emerge from the attempts to normalize inventories – particularly in the apparel segment. As such, Oppenheimer analyst Brian Nagel believes that warning strongly limits the risk of a “potential, incremental negative surprise.”
In fact, looking ahead to the print, the analyst thinks the results are “likely to prove solid.” Nagel also highlights the reasons behind his confident forecast.
For one, leading sports-focused retail chains Dick’s Sporting Goods, Academy Sports and Outdoors, and Foot Locker have all recently talked up the “continued, underlying solid consumer demand within athleisure.” Secondly, going by the recent data, as the Covid-19 disruptions have eased in China, sales of NKE products in the region have started to bounce back.
As for the numbers, Nagel expects EPS of $0.55, the same as the Street, and anticipates a “total company constant-currency sales expansion” of +11% (just slightly above consensus at +10%). Consistent with guidance and on account of the ongoing efforts to clear excess inventories, Nagel expects gross margins to drop by about 290 bps – to 43.7% from 46.6% in the same period a year ago.
All told, Nagel thinks investors should take advantage of a stock trading at multiples “still well below recent peak levels.” “We recommend NKE as a top, larger-cap pick within our Consumer Growth & eCommerce coverage universe,” the 5-star analyst summed up. “Overall, we look favorably upon Nike and the company’s shares into the fiscal quarterly announcement.”
All told, Nagel sticks with an Outperform (i.e., Buy) rating, backed by a $150 price target. There’s potential upside of 21.5% from current levels. (To watch Nagel’s track record, click here)
Elsewhere on the Street, the stock receives an additional 13 Buys, 4 Holds and 1 Sell, for a Moderate Buy consensus rating. The average target stands at $134.28, making room for 12-month gains of 9%. (See Nike stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
