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On Friday, UBS maintained a Neutral rating on Nike (NYSE:NKE) stock, but reduced the price target to $66.00 from the previous $73.00. The adjustment followed Nike’s third-quarter report, which is expected to lead to a substantial reduction in sell-side earnings per share (EPS) estimates. Currently trading at $66.95, near its 52-week low, InvestingPro analysis suggests Nike is slightly undervalued based on its Fair Value calculations.
Nike’s recent earnings announcement has raised concerns among investors and analysts alike. With revenue declining by nearly 5% and InvestingPro data showing analysts anticipating further sales decline this year, UBS noted that the central issue now is whether the sell-side EPS estimates for Nike have reached their lowest point. Despite this uncertainty, UBS analysts identified potential risks that could lead to a further decline in Nike’s earnings outlook.
The analysts observed that Nike has yet to significantly enhance its product lineup or marketing strategies to a degree that would guarantee an improvement in current trends. This lack of progress suggests that there may still be challenges ahead for the company in terms of its market performance, though the company maintains strong fundamentals with a healthy current ratio of 2.22 and moderate debt levels.
Nevertheless, there is a silver lining, as Nike has made the strategic decision to ramp up its investments in the short term. This move is intended to foster a return to robust growth over the long term. UBS views this investment as a favorable development, indicating a belief that the ongoing cycle of earnings revisions for Nike may be nearing its conclusion rather than just beginning.
The reduced price target reflects UBS’s cautious stance on Nike’s stock, taking into account the company’s current situation and its efforts to position itself for future success. The maintained Neutral rating alongside the lowered price target suggests a wait-and-see approach to the stock, as the company navigates through its present challenges and investment phase.
In other recent news, Nike has reported its fiscal third-quarter earnings, revealing revenues of $11,269 million, which is a 9% decrease year-over-year but surpassed several analysts’ expectations. The earnings per share (EPS) stood at $0.54, exceeding projections from firms like Stifel and Needham. Despite these results, the company maintains an unchanged outlook for the second half of fiscal year 2025, with anticipated revenue declines and gross margin reductions in the fourth quarter. Analysts from Baird and Needham have adjusted their price targets for Nike, with Baird lowering it to $99 while maintaining an Outperform rating, and Needham reducing it to $75 but keeping a Buy rating.
The revision in targets reflects challenges in Nike’s "Win Now" strategy and a cautious short-term outlook. Citi analysts have reiterated a Neutral stance with a $72 price target, highlighting weaker-than-expected gross margins and anticipated declines in the fourth quarter. Nike’s performance in Greater China remains a concern, with significant sales declines noted. Despite the headwinds, analysts like those from Baird remain optimistic about Nike’s recovery potential, citing ongoing product and marketing initiatives. However, the firm acknowledges that recovery may take time, with significant pressures expected in the first half of fiscal year 2026.
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