Truist upgrades Nike stock to Buy, says new management can reignite interest

Investing.com -- Analysts at Truist Securities have upgraded   Nike   (NYSE:NKE) stock to Buy, a move driven by optimism around recent leadership changes.

The price target has also been raised to $97 from $83, reflecting more than 17% upside from Nike’s current trading price.

While acknowledging that Nike's turnaround may be a long and uncertain process, Truist analysts believe the new management, including the return of long-time veterans like Tom Peddie and incoming CEO Elliot Hill, can reignite excitement around the brand.

A key factor in this upgrade is the management's focus on restoring Nike’s wholesale relationships, which had been neglected during its direct-to-consumer (DTC) expansion.

Truist believes that re-engaging with retail partners like Macy’s Inc (NYSE:M) and Designer Brands Inc (NYSE:DBI), and potentially establishing a store on Amazon (NASDAQ:AMZN), could drive significant growth.

“With Elliot Hill and Tom Peddie at the helm, we believe Nike’s first strategic priorities will revolve around re-engaging with retail partners,” Truist analysts wrote.

The re-entry into Amazon’s platform, especially after recent improvements in Amazon’s counterfeit prevention, is seen as a potential “game-changer.”

While the financial recovery may take time, Truist remains positive about near-term catalysts, such as Nike’s investment in marketing and endorsement deals. The signing of WNBA star Caitlin Clark to a multi-million dollar contract is highlighted as an underutilized asset.

“Although a fundamental recovery remains a long-term prospect, we think some near-term wins from the fresh team should be enough to show investors there are better times ahead,” analysts noted.

In terms of valuation, Truist says that while Nike shares aren’t “cheap,” the stock’s underperformance over the past year has created an attractive entry point for investors betting on a long-term recovery.

Following three consecutive earnings and guidance disappointments, Nike shares fell more than 30% since December 2023, compared to a 22% gain for the S&P 500 over that period.

“While shares are currently trading at ~28.5x Street’s next-twelve-months EPS forecasts on a relative basis, NKE’s current ~32% premium to the S&P 500 is well below the 3-year average of ~60%,” analysts said.

“At these levels we think qualitative improvements that highlight that the new management team is aggressively pursuing a turnaround would be enough for shares to outperform.”