On Thursday, analyst Rick Patel started coverage of Nike stock (NYSE:NKE) at the Outperform level, establishing a price objective of $99 for the company. Patel’s stamp of approval comes when investors have shied away from the company, disheartened by recent commentary on how excess inventory, supply chain snafus, and sluggish consumer demand have shrunk margins. Patel’s clearance comes as the stock trades at a new 52-week low.

Nike Stock On Difficult Situation

Raymond James advises investors not to write off Nike. Even though the firm is now facing some challenges that have combined to provide a difficult situation in the near term, these issues will eventually be resolved.

According to what Patel wrote in a research note published on Thursday, these margin challenges indicate “mostly transient difficulties,” which many investors have already considered. This year, the stock has had a loss of 47%.

In his letter, he stated, “We believe that much of the margin-related bad news seems to be priced in, and Nike has a significantly larger revenue base to work with to drive higher earnings when margins begin to improve in FY24 and beyond in our view.” “We believe much of the margin-related bad news seems to be priced in.”

According to Patel, Nike is transitioning away from a business model that is based on wholesale and toward one that is focused on selling directly to consumers. This will eventually act as a “strong tailwind” to the company’s sales and profitability. At the moment, digital is the channel with the biggest margin for Nike. In addition, the corporation stands to profit from its development into international markets and from the reopening of China in the not-too-distant future.

Patel admitted that the hard environment may be a short-term concern for the stock and that it was a possibility. The primary issue at hand is an excessive amount of inventory, which is not an issue that is exclusive to Nike. Because Nike’s inventory increased by 44% during this quarter, the corporation has significantly reduced the price of certain products. In late September, Barclays analyst Adrienne Yih downgraded the company to Equal Weight, stating that the pressure on margins and profitability will continue considerably into the following few quarters.

According to Patel, Nike must also deal with the adverse effects of foreign exchange and increasingly fierce competition in the sector.

Despite this, most analysts on Wall Street continue to have an optimistic outlook on the company, with 64% giving it a Buy recommendation and 36% giving it a Hold.

During the premarket hours, the price of the shares fell 1.8% to $86.96.

 

Featured Image:  Megapixl © Alakoo

Please See Disclaimer