On Friday, RBC Capital adjusted its stance on Nike Inc (NYSE:NKE), downgrading the sportswear giant's stock from Outperform to Sector Perform and lowering the price target to $100 from the previous $110. The revision follows Nike's first half of fiscal year 2025 guidance, which suggests a lack of revenue growth for the calendar year 2024. This outlook indicates a period of stagnation for the company, which is also navigating organizational restructuring and a product transition.
The analyst from RBC Capital expressed concerns over the added uncertainty and guidance risk posed by Nike's current strategic changes. Despite acknowledging the potential for Nike to improve following these adjustments, the firm has taken a cautious approach, citing stronger momentum at competitor adidas, which maintains an Outperform rating.
In response to the guidance provided by Nike, RBC Capital has revised its financial forecasts for the company. For fiscal year 2025, estimates have been reduced by 8%. Additionally, the firm has adjusted its expectations for fiscal year 2024, with a 30 basis points decrease in gross margin to 44.7%, a 2% reduction in EBIT to $6.4 billion, and a revised earnings per share (EPS) of $3.44.
The downgrade and revised price target reflect RBC Capital's current analysis of Nike's near-term prospects. Nike's shares will continue to be monitored by investors as the company works through its restructuring and product transition phases.
InvestingPro Insights
As Nike Inc (NYSE:NKE) faces a challenging period highlighted by RBC Capital's recent downgrade, investors are closely monitoring the company's performance metrics and market position. According to InvestingPro, Nike has a history of resilience, having raised its dividend for 22 consecutive years and maintaining dividend payments for 41 years. This track record suggests a commitment to shareholder returns even during times of uncertainty.
InvestingPro Data shows a market capitalization of $140.91 billion, indicating Nike's substantial presence in the market. Despite the concerns over revenue growth, Nike's P/E Ratio stands at 29.69 with a slight adjustment in the last twelve months as of Q2 2024 to 28.82. Additionally, the company's Price / Book ratio as of the same period is 10.8, which could signal a premium valuation compared to industry peers.
Investors seeking a more in-depth analysis can find additional InvestingPro Tips on Nike's performance, including its low price volatility, status as a prominent player in the Textiles, Apparel & Luxury Goods industry, and the ability of its cash flows to sufficiently cover interest payments. For those interested in exploring these insights further, InvestingPro offers a comprehensive list of tips to guide investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover why Nike is currently trading near its 52-week low and how its liquid assets compare to short-term obligations.
With a total of 12 additional InvestingPro Tips available, investors can gain a broader understanding of Nike's financial health and market position, which may be particularly valuable during this transitional period for the company.
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