Key insights
- Truist downgraded Nike (NKE) to Sell, citing a rally that ignores ongoing business risks. The analyst noted that Nike's valuation has risen significantly, with headwinds in its Sportswear and Jordan businesses, and signs of fading traction in running. The outlook for China has also worsened, with increased competition. Truist lowered its fiscal 2028 EPS estimate below the Street's consensus.
Investing.com -- Truist cut its rating for Nike to Sell and kept its $29 price target on the stock in a note on Thursday, arguing that the sportswear giant’s recent rally does not reflect any improvement in the business.
“NKE shares are up 19% over the past ~month (vs S&P flat), which we believe reflects positive sector rotations rather than an improvement in underlying fundamentals,” analyst Joseph Civello wrote ahead of today’s open.
Over that period, Nike’s valuation has risen to 27 times earnings two years out, almost double the peer average.
Truist said headwinds in Nike’s Sportswear business may still be underappreciated. Problems that initially centered on classic franchises such as the Air Jordan 1, Air Force 1 and Dunks have spread across Sportswear and Jordan, which make up more than 60% of Nike’s business.
The firm noted that five of seven recent Nike and Jordan launches have sold below retail price.
Civello also flagged tougher comparisons in running, where Nike has had success but where he sees early signs of fading traction, as well as a difficult comparison against this year’s World Cup.
On China, he noted that new CFO Dave Denton sharply cut the outlook for the region, which is now expected to worsen through the year.
“We struggle to identify a clear catalyst path for reaccelerating demand in the region in the NT/MT, especially as competition from local & other western brands continues to get more intense,” the analyst said.
Truist cut its fiscal 2028 EPS estimate to $1.30, below the Street’s $1.50.
Original Article