On Friday, Deutsche Bank (ETR:DBKGn) updated its stance on Nike (NYSE:NYSE:NKE), raising the price target to $84.00 from the previous $82.00, while keeping a Buy rating on the stock. The adjustment follows the public introduction of Nike’s new CEO, Elliott Hill, who presented a comprehensive turnaround strategy for the company.
According to InvestingPro data, Nike currently trades at a P/E ratio of 21.97x and appears slightly undervalued based on Fair Value analysis, despite its challenging year with a -27.77% year-to-date return. The plan includes refocusing on sports, rebuilding trust with wholesale partners, increasing marketing efforts, addressing inventory issues, and steering Nike Direct and digital sales back to full-price transactions.
According to the analyst from Deutsche Bank, Nike’s brand reset will incur costs, resulting in lower sales projections and gross margin pressures. Specifically, sales for the third quarter are expected to decline in the low double-digits, with gross margin facing a 300-350 basis points squeeze and selling, general and administrative expenses (SG&A) anticipated to grow by approximately 6%, excluding the prior year’s $340 million restructuring charge. The fourth quarter could see even more significant challenges.
The revised forecast by Deutsche Bank suggests that Nike’s earnings per share (EPS) for fiscal year 2025 could be between $1.70 and $1.90, which is notably below the low to mid $2 range expected by the buy-side analysts.
Despite these near-term challenges, Deutsche Bank expressed optimism about Nike’s strategic shift back to its sports roots, away from a lifestyle/streetwear emphasis, and efforts to improve relationships with consumers and wholesale partners through enhanced storytelling.
The bank anticipates that the positive effects of these changes will become more evident around Fall 2025, as Nike works through its inventory and scales new product launches.
The analyst concluded by reiterating the view that Nike’s turnaround will be a long-term endeavor, emphasizing the need for patience among investors as the company embarks on this transformational journey.
Despite current challenges, Nike has maintained its position as a reliable dividend payer, having raised dividends for 23 consecutive years with a current yield of 2.08%. For deeper insights into Nike’s financial health and future prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US equities.
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