Nike (NYSE: NKE) stock pulled back on its recent earnings report after it reported weak revenue growth and offered disappointing guidance. The update also showed that Nike was losing market share to up-and-coming competitors like On Holding and Deckers' Hokas.
However, Nike just got some good news via an endorsement from Bank of America, which upgraded the footwear stock on Thursday to a buy with a price target of $113.
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BofA says Nike's OK
According to Bank of America, Nike might be struggling, but the summer is about to saved it. BofA says that estimates on the stock look manageable and its valuation has come down considerably since peaking during the pandemic. The analyst also cited the Olympics as a potential catalyst and thought Nike could unveil some significant new initiatives at its analyst day meeting in the fall.
Is Nike headed higher?
Nike has faced a number of challenges in recent quarters, including a sluggish economy in China, tepid demand for discretionary goods stateside, and supply chain whiplash following earlier shortages. It's also stepping back from its direct-to-consumer strategy, realizing the importance of the wholesale channel. Meanwhile, its new Major League Baseball uniforms, some of which show sweat stains, have been an embarrassment.
Nike seems to have overcome the supply chain issues, and demand -- at least in the U.S. -- should normalize as fears of a recession recede. However, it needs to strengthen its relationship with consumers and push back against rivals for the stock to have a significant rebound.
The good news is Nike just announced a new lineup of footwear and apparel products that it believes will kick of a "multi-year innovation cycle." The Olympics should also give Nike an opportunity to reconnect with its customer base, and it is planning its biggest Olympics marketing campaign ever.
With a more reasonable valuation, Nike's downside risk looks limited, but adding 22% in the next year won't be easy. Still, it's a mistake to bet against this category leader over the long term as Nike deserves the benefit of the doubt until proven otherwise.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America and Nike. The Motley Fool has positions in and recommends Bank of America and Nike. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
