On Friday, Nike (NYSE:NKE) faced a challenging day as its shares plummeted. The company’s iconic swoosh might as well have been replaced with an “ooof” as the stock experienced its largest-ever one-day drop, falling 20% after disappointing fiscal fourth-quarter (May quarter) results.
While the revenue and profit figures were mixed, the main disappointment came from the company’s outlook. Macro headwinds and ongoing weakness in China led to a reduced sales forecast for FY25. The sportswear giant now expects a high-single-digit revenue decline for the first half of fiscal 2025, compared to the previously anticipated low-single-digit drop. Wall Street had predicted a 2.3% decline. Additionally, Nike’s guidance for the first quarter of fiscal 2025 (ending in August) forecasts a revenue decline of around 10%, significantly below analysts’ expectations of a 2.8% decrease.
Not long ago, Oppenheimer’s Brian Nagel, a top-ranked analyst on Wall Street, upgraded his rating on NKE. He cited a “historically discounted share valuation,” pessimistic investor sentiment, and the intermediate to long-term prospects for a fundamental recovery, based on management’s substantial “strategic repositioning efforts,” as reasons for his optimism.
READ ALSO: 2024 Mid-Year Outlook and JD Power EV Study: Market Domination in Overtime
Has the latest readout changed the 5-star analyst’s view? Not really. While Nagel concedes the results and updated FY25 guidance proved “even weaker than our downbeat and below Street forecasts,” he still sees the readout and commentary as “likely a ‘last bad’ quarter and ‘healthy clearing event for NKE.’”
“NKE is working to aggressively reposition the company’s global enterprise amid an increasingly soft demand backdrop in the US and in markets across the globe,” Nagel continued. “We continue to very much expect NKE efforts to help fuel an even stronger recovery at the company, as cyclical pressures ease.”
All told, Nagel rates Nike shares as an Outperform (i.e., Buy), with a $120 price target, suggesting the shares will rebound 59% over the coming year.
Most of Nagel’s colleagues are almost evenly split between bulls and skeptics. With 13 additional Buy recommendations, 15 Holds, and 2 Sells, the stock has a Moderate Buy consensus rating. At $96, the average price target suggests one-year returns of ~27%.
