Nike Inc (NYSE: NKE) has gone on quite a run in the past month after impressing investors with its long-term guidance, but the stock may finally have run out of steam.
HSBC Global Research analyst Erwan Rambourg downgraded Nike stock from “buy” to “hold” and said the North American athletic apparel market is simply too weak at the moment for Nike to gain any traction.
Nike stock rallied more than 14 percent in the past six weeks after the company guided for mid-teens earnings-per-share growth over the next five years at its investor day event in October. However, at this price and in this environment, Rambourg says it will be difficult for Nike to deliver additional upside.
“Nike management provided insight into a compelling future at investor day, but the present is tricky and shares have done well,” Rambourg says.
While Nike’s numbers and guidance are generally positive, he says the stock is fairly priced compared to competitor Adidas. In addition, market sentiment is extremely positive at the moment, and Rambourg says it’s hard to find a good reason to buy Nike stock at this point.
To make matters worse, the company faces a number of difficulties in a shifting U.S. retail environment. “The U.S. market does not seem to be very clean just yet, the case for overdistribution of the brand can easily be made and communication remains an issue in our view,” Rambourg says.
The good news for long-term Nike investors is that Rambourg still sees a “great future” for Nike for those willing to settle for lackluster market returns in the meantime.
Last month, Goldman Sachs also downgraded Nike stock to “neutral.” Analyst Lindsay Mann says Nike stock will likely be range-bound until conditions in the North American market improve.
HSBC has lowered its 2018 EPS and revenue estimates for Nike from $2.60 and $36.8 billion to $2.46 and $36.3 billion.
In addition to the “hold” rating, HSBC maintains…
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