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On Friday, CFRA made an adjustment to its rating on Nike Inc (NYSE:), upgrading the athletic apparel and footwear giant from Sell to Hold. The firm also increased its price target for the stock to $95.00, up from the previous target of $91.00.
The new price target is based on a multiple of 25.3 times CFRA’s fiscal year 2025 (ending March) earnings per share (EPS) estimate. This valuation is below Nike’s two-year average forward price-to-earnings (P/E) multiple of 29.4 times.
The upgrade follows Nike’s recent earnings report, which showed a normalized third-quarter EPS of $0.98 compared to $0.79 in the same period last year, surpassing consensus estimates by $0.23. Revenue for the quarter was reported at $12.43 billion, slightly above the estimated $12.39 billion and $130 million higher than consensus estimates.
Nike saw varied performance across different regions, with China experiencing a revenue increase of 6%, while the Europe, Middle East, and Africa (EMEA) region saw a 4% decline. North America and the Asia Pacific and Latin America (APLA) regions both posted growth, at 3% and 4% respectively.
The company’s gross margin for the quarter also improved, rising by 150 basis points to 44.8%, which was attributed to reduced freight and logistics costs, as well as more effective promotional activities. Marketing expenses, referred to as demand creation expenses, increased by 10% to $1 billion during the quarter.
Moreover, inventory levels showed a positive trend, declining by 13% year-over-year to $7.7 billion, which CFRA views as a healthy sign. Despite the upgrade and the positive aspects of the latest earnings report, CFRA maintains a cautious stance on Nike’s stock, expressing uncertainty about where the company’s next phase of growth will emerge from.
Nevertheless, the analyst believes that Nike’s valuation is now fair, prompting the revised rating and stock price target.
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