The results for the first quarter that Nike stock reported left a lot to be desired, which prompted a flurry of price target cutbacks that have caused the stock to plummet.
However, for other individuals, this correction creates a purchasing opportunity.
Analyst Feedback on Nike Stock
An analyst from BMO Capital Markets named Simeon Siegel said in a research note released on Friday that “In what is becoming a painful cycle, Nike Inc. (NYSE:NKE) again topped revenue/[earnings per share], but missed margins and guided down.” Siegel decreased his price objective from $128 down to $110.
The price of Nike stock dropped by 12% on Friday, bringing the yearly loss for the firm to a new low of 50%. The stock is on course to close at its lowest point since April 2020. The Nike stock has seen a loss of more than twenty percent so far this month, putting it on track to have its worst month since February of 2001.
Wall Street was expecting Nike to announce revenue of $12.3 billion and earnings of 92 cents per share, but the company instead reported revenue of $12.7 billion and profits of 93 cents per share, exceeding these expectations. The decline in gross margins was 2.2 percentage points, bringing them down to 44.3%, and it’s probable that the trend will continue. The management anticipated a further drop of between two and two and a half percentage points for the fiscal year 2023.
One of the most significant contributors to the decline is the presence of an excessive amount of inventory. This quarter, Nike’s inventory increased by 44%, which was driven by a 65% increase in North America. As a result of this spike, the corporation is being forced to provide significant discounts. According to Matthew Friend, the company’s Chief Financial Officer, the business is concentrating on fast disposing of around ten percent of its inventory, especially in North America, while also restricting its acquisitions. Friend anticipates a “sequential improvement in inventory balances” over the course of the following three quarters of the year.
However, finding a solution to the company’s inventory problem won’t be a simple task. The stock’s slide over the past several months, according to CFRA analyst Zachary Warring, helped level out the balance between risks and prospective rewards, which allowed him to raise his recommendation for Nike from Sell to Hold in advance of the earnings report. In light of the fresh information that was released on Thursday, he stated that he would continue to exercise caution regarding the shares because of the growing inventory and the declining purchasing power of customers.
Others are concerned that while the inventory concerns are now limited to North America, they may quickly spread around the world if consumer demand continues to decrease.
Adrienne Yih, an analyst at Barclay’s, said that “with potential higher oil costs looming on the horizon for the winter season, we are more cautious on future demand in the EMEA market.” “With potential higher oil prices lurking on the horizon for the winter season.” “In addition, with reference to China, although sales in FY1Q23 were down 13%, the results came in better than predicted, there was no clear indication offered on when the China market would return to positive growth,”
On Friday, Yih decreased her goal for the price of the stock to $83 from the previous objective of $110. Before the earnings were released, the analyst had already reduced her target price for the company and downgraded it to Equal Weight.
According to an analyst at UBS named Jay Sole, “Nike’s stated plan of using promotions to reduce excess apparel inventory in North America this Holiday season is negative for other garment-focused Softline firms,” and this sentiment was expressed in a written report. “It very certainly indicates that the promotional climate will be more challenging than anticipated for the entirety of the industry.”
In spite of the difficulties in the near term, many investors on the street continue to recommend buying Nike stock. Even though he reduced his price objective for the stock from $156 to $141, Sole maintained his Buy recommendation for the company’s shares. According to FactSet, 66 percent of analysts have a Buy rating on Nike stock, while 34 percent have a Hold rating for the stock.
Tom Nikic, an analyst at Wedbush, similarly lowered his price target, moving it down from $121 to $101, although he maintained an Outperform rating. Now that Wall Street has begun to factor in poorer sales and earnings, the Nike stock might increase if China returns to growth, inventory levels improve, and consumer demand continues strong, as he stated. This is because the street has begun to factor in weaker sales and profitability.
In a study note that was released on Friday, the authors stated that “while we were cautious entering the print, this was worse than we expected.” “That being said, we do have faith in Nike stock ability to traverse turbulent seas and emerge more quickly from the ongoing upheaval than the majority of the other brands that we cover,”
Robert Drbul, who works at the Guggenheim, said that the store is selling more than just Nike sneakers. He stated that the stock’s pricing is enticing at a level that is fifty percent below its highs. Additionally, Drbul decreased his price objective by $20, bringing it down to $135.
In a research note he published on Friday, he stated, “While Nike is being impacted by short-term operational factors, we believe the long-term financial framework the business laid out last year is relatively feasible.” We believe that the brand will continue to be successful, and once inventory levels and problems with the supply chain are resolved, we anticipate that the shares will fully recover.
Featured Image: Megapixl © Alakoo
Author Marianna Vilchez 
