Nike (NKE -2.24%) stock slid 2.5% through 10:25 a.m. ET Friday after CNBC (and others) reported Citigroup is downgrading the stock to neutral.
Citi is just back from a meeting with new Nike CEO Elliott Hill, and feeling unenthused by the CEO's promises for 2026 performance. Neither sales nor earnings forecasts were as good as Citi hoped for, and "Nike's sales pressures seem likely to continue as it manages down key franchises further in fiscal 2026," reports The Fly.
CEO Hill apparently warned Citi that Nike lacks sufficient "product" to hit analyst sales targets next year, and needs to invest in "demand creation" for its existing products -- which sounds like Wall Street-speak for holding sales and cutting prices, hurting gross and operating profit margins. As a result, Citi is losing confidence the shoemaker will turn around its business within the next year or two, and the bank simply lacks "patience or conviction to wait another year."
That's the bad news. Now here's the good:
At least two other investment banks attended the same CEO meeting, and came away more optimistic. As StreetInsider.com reports, Bernstein SocGen analyst Aneesha Sherman is doubling down on her outperform rating on Nike, and Piper Sandler analyst Anna Andreeva is reiterating her overweight rating.
Both of these analysts acknowledged the same concerns that worried Citi, but Piper emphasized Nike's success in cost-cutting and "grassroots marketing." At Bernstein, the emphasis is on Nike's performance (sport, running, soccer, and basketball) shoes potentially doing "better than you might think," albeit at worse margins.
Ultimately, Bernstein concludes "the risk-reward remains attractive" at Nike. But I'm not so sure that's true.
On the one hand, yes, in a market where the average S&P 500 stock sells for 30 times earnings, Nike's 22 P/E ratio looks reasonable, and Nike's 2.1% dividend yield is above average. On the other hand, most analysts forecast subpar 4% long-term earnings growth for Nike. And now Citi is saying Nike might underperform on growth, and the other analysts don't disagree?
Seems to me that's bad news for Nike stock.
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