Nike Stock Upgrade by Truist Securities

Analysts at Truist Securities have upgraded Nike (NYSE:NKE) stock to Buy, driven by optimism surrounding recent leadership changes.

The price target has increased to $97 from $83, indicating more than 17% upside potential from Nike’s current trading price.

While the Nike turnaround may be lengthy and uncertain, Truist analysts feel confident that the new management, including returning veterans like Tom Peddie and incoming CEO Elliot Hill, can revive enthusiasm for the brand.

A crucial reason for this upgrade involves management’s focus on restoring Nike’s wholesale relationships, which had suffered during its direct-to-consumer (DTC) growth.

Truist believes that reconnecting with retail partners such as Macy’s Inc (NYSE:M) and Designer Brands Inc (NYSE:DBI), and potentially opening a store on Amazon (NASDAQ:AMZN), could lead to substantial growth.

> “With Elliot Hill and Tom Peddie at the helm, we believe Nike’s first strategic priorities will revolve around re-engaging with retail partners,” the analysts said.

Re-entering Amazon’s platform could be a game-changer, especially after improvements in Amazon’s counterfeit prevention.

Though financial recovery may take time, Truist is optimistic about near-term catalysts like Nike’s marketing investments and endorsement deals, highlighting their signing of WNBA star Caitlin Clark to a multi-million dollar contract as an underutilized asset.

> “Although a fundamental recovery remains a long-term prospect, we think some near-term wins from the fresh team should show investors a brighter future,” the analysts noted.

On valuation, Truist stated that while Nike shares aren’t “cheap,” its underperformance over the last year has created an attractive entry point for investors betting on a long-term recovery.

Following three consecutive earnings and guidance disappointments, Nike shares have decreased by more than 30% since December 2023, in contrast to a 22% gain for the S&P 500 during the same period.

> “While shares are currently trading at ~28.5x Street’s next-twelve-months EPS forecasts on a relative basis, NKE’s current ~32% premium to the S&P 500 is well below the 3-year average of ~60%,” analysts concluded.

> “At these levels, we believe qualitative improvements that demonstrate the new management team’s aggressive approach to a turnaround would suffice for the shares to outperform.”