Nike Inc (NYSE: NKE) stock has been on a tear the past three months as investors now believe they see the light at the end of the tunnel in the slumping North American athletic apparel market. Wedbush has upgraded NKE stock and says that light may be even closer than investors realize.
According to Wedbush analyst Christopher Svezia, the pricing pressures on Nike’s footwear products in the North American market could start to ease in the next couple of quarters. Distribution pressures may linger for a while longer, but direct-to-consumer sales should push overall sales into positive territory in fiscal 2019, Svezia says. He’s also excited about Nike’s product line this year, including the Air 270, Shox Gravity and Epic React.
“There are more tangible product drivers to the story around casual and lifestyle that should resonate and be more impactful to consumers,” Svezia says.
He projects Nike will end fiscal 2018 on a high note by reporting fourth-quarter gross margin expansion for the first time in 10 quarters.
While the North American market is stabilizing, Svezia says the international market will continue to be a headline of Nike’s growth. Nike has taken a $1.8 billion hit the past three years due to foreign exchange rates, but Svezia says that headwind could shift to a significant tailwind in 2019.
Wedbush has raised its fiscal 2018 and 2019 earnings-per-share estimates from $2.22 and $2.53 to $2.24 and $2.67, respectively. The firm has also initiated EPS guidance for fiscal 2020 of $3.05.
Finally, Svezia says the valuation of Nike stock is reasonable even after its recent run.
“While shares may have started to anticipate some of this inflection, we would argue once it begins to show up in the numbers, and the commentary around a return to growth in [North America] ensues, NKE’s share price and multiple will likely continue to appreciate,” he says.
Svezia isn’t the only analyst expecting big things from Nike in 2018. Earlier this month, Buckingham Research Group analyst Eric Tracy said he expects Nike to return to double-digit earnings growth this year.
“Our checks … suggest consumer demand for performance-driven product is re-emerging, historically correlating to multi-year NKE revenue strength,” Tracy says.
Buckingham has…
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