The previous year proved prosperous for U.S. stocks, witnessing a robust 24% surge in the S&P 500 Index ($SPX) throughout 2023. However, Nike Inc (NYSE:NKE) faced a different fate, emerging as one of the worst-performing stocks on the Dow Jones Industrial Average ($DOWI) by the end of the year.
The downward trajectory for Nike intensified in December when the iconic sneaker brand disclosed its fiscal second-quarter 2024 earnings. The company not only fell short of revenue estimates for the quarter but also revised its full-year revenue growth projection to a meager 1%, down from the earlier forecast of mid-single-digit revenue growth. This marked the second consecutive quarter of revenue misses, a rarity for Nike since 2016.
Having reached an all-time high closing value of over $173 in November 2021, Nike’s stock is currently trading approximately 41% below its 52-week peak. This underwhelming performance is stark, especially when compared to the S&P 500, which is hovering near its all-time highs.
As the leading global sneaker brand, Nike faced a 30% stock decline in 2022 amid a broader market downturn. Surprisingly, in 2023, despite favorable market conditions, the company continued to underperform. The question now is whether 2024 will bring a much-needed recovery for Nike’s stock.
Forecast for Nike Stock in 2024
Wall Street analysts maintain a “Moderate Buy” rating for Nike stock. Out of the 28 analysts covering the stock, 16 consider it a “Strong Buy,” while 3 label it as a “Moderate Buy.” Eight analysts rate NKE as a “Hold,” and only 1 analyst suggests a “Strong Sell.” Nike’s mean target price of $125.58 stands 19% above its current value.
Nike’s stock is trading in proximity to its Street-low target of $104, while the Street-high target of $150 suggests an implied upside of 42%. Despite downgrades by CFRA and Cowen to “Sell” and “Market Perform,” respectively, after the fiscal Q2 earnings, some experts, including Barclays and Bernstein, believe the sell-off may be excessive and have named Nike a top pick for 2024.
Factors Contributing to Nike’s Stock Decline
Concerns have arisen regarding the demand for Nike products in the U.S., its largest market, amid a slowdown in consumer spending. Simultaneously, sales in the Greater China region have been lackluster.
During the fiscal Q2 earnings call, Nike’s CFO Matt Friend attributed the muted revenue guidance to increased macro headwinds, particularly in Greater China, adjusted digital growth plans, softer digital traffic, higher marketplace promotions, life cycle management, and the impact of a stronger U.S. dollar.
Prospects for Recovery
Despite the lowered full-year revenue guidance, Nike anticipates a 140-160 basis points expansion in gross margins for the year. This excludes the up to $450 million charge expected in Q3 for severance costs as part of the restructuring plan targeting $2 billion in annualized cost savings over the next three years.
With a significant reduction in inventory and optimistic comments from Friend during the earnings call, there is confidence in Nike’s ability to weather the storm.
While short-term challenges persist, the current stock price reaction seems exaggerated. Trading at 27 times forward earnings, the current multiples are lower than the average over the last three years.
Anticipated Growth in Fiscal Year 2025
Despite hurdles in the current fiscal year, analysts project a turnaround in fiscal year 2025, forecasting sales growth of 6.7% and earnings per share growth of 18.3%. Nike’s strategic efforts, including substantial inventory reduction and a multiyear product innovation cycle, provide optimism for a rebound.
In conclusion, with modest valuations and an expected growth resurgence in the next fiscal year, Nike appears to be a sound investment at current prices, with the potential for a gradual recovery over the next few years.
Featured Image: Unsplash
Author Faith Yakubu 
