MW Buy Nike's stock aggressively as new CEO's playbook should work, analyst says

By Tomi Kilgore

Jefferies' Randal Konik sees 50% upside in the stock, as he effectively calls a bottom in earnings and investor sentiment

Shares of Nike Inc. were jumping toward a two-month high in early Monday trading, after Jefferies recommended investors start aggressively buying and said earnings are set to start a V-shaped recovery just as valuations hit a bottom.

Analyst Randal Konik said he believes new Chief Executive Elliott Hill's plan to restore wholesale partnerships and push for new products will drive a surge in profitability and increase Nike's share of the athletic footwear market over the next few years.

The stock $(NKE)$ rose 2.6% in premarket trading, enough to pace the Dow Jones Industrial Average's DJIA early gainers. The rally comes about two weeks after it had closed at a five-year low.

Konik raised his rating on Nike's stock to buy, after being at hold for the past 17 months, saying it was his "new top pick." Konik also lifted his stock price target to $115 from $75, with the new target implying a 50.3% upside from Friday's closing price of $76.50.

"With shares near a valuation trough, we believe now is the right time to aggressively buy shares," Konik wrote in a note to clients, given the big potential upside and minimal downside risk.

By valuation trough, Konik notes that the stock's price, relative to sales expectations over the next 12 months, is around the lowest levels seen in a decade, which he believes sets a "valuation floor."

Konik said Nike had made a number of missteps, including reducing its focus on product innovation and an overemphasis on Nike Digital and selling directly to customers.

"[Nike's] brand remains very strong, proving that issues were self-inflicted and competitive threats less severe," Konik wrote.

But he believes longtime Nike veteran Hill, who took the reins in October, has the right idea in restoring partnerships with wholesalers and focusing on product innovation.

In addition, Konik noted that job listings for product positions have jumped from 1% of average monthly listings in 2024 to 10% of current active listings.

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"We think Hill has the right playbook," Konik wrote. "It worked a decade ago, so it's highly likely to work again."

It was that playbook that helped Nike's stock end a near two-year funk that started in mid-2015 and pushed the price-to-sales ratio down to set the current "trough" level.

Konik expects margins, or how much a company makes on each product, will start seeing a V-shaped recovery into 2027, and push earnings well above what Wall Street is currently expecting.

A proprietary Jefferies survey showed that more than half of U.S. consumers planning to buy athletic footwear will pick Nike shoes, and more than 60% of those between 18 and 44 will choose Nike.

"As channel inventories rebalance along with improved product direction and execution we believe a substantial earnings recovery will ensue over the coming 2 years," Konik wrote.

Nike's stock has tumbled 27.6% over the past 12 months through Friday, while the U.S.-listed shares of Adidas AG (ADDYY) have rallied 24.9% and Under Armour Inc. shares $(UAA)$ have dropped 15.9%. The Dow has advanced 11% over the past year.

-Tomi Kilgore

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February 24, 2025 08:17 ET (13:17 GMT)

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