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UBS affirms Nike's 'neutral' rating


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UBS affirms Nike's 'neutral' rating

UBS on Dec. 21 affirmed Nike Inc.'s "neutral" rating despite posting strong year-over-year gains for the second quarter of 2019.

The sportswear company, headquartered in Beaverton, Ore., reported revenue growth across all regions for the three months ended Nov. 30, when excluding the impact of currency changes. Greater China showed the highest year-over-year increase at 31%; followed by Asia Pacific and Latin America, up 15%; then Europe, the Middle East and Africa, rising 14% year over year; and North America, up 9%.

UBS also noted that the apparel and footwear retailer said it is on track to meet its five-year EPS and revenue growth targets and hinted that fiscal 2020 is in line with its plans.

However, Nike is "unlikely" to deliver near-term outperformance, according to UBS analysts Jay Sole, Eddie Ryan and Carlos Castellanos.

The analysts cited the company's mix shift to digital, a "big margin driver" in UBS' view that will require "heavy investment" from Nike, for its rating affirmation. EBIT growth also remained modest at only 13% despite a 10% year-over-year jump in sales for second-quarter 2019.

Although the investment bank maintained Nike's rating, UBS raised the company's 12-month price target to $78, up $1 from the previous $77.

UBS added that it expects Nike's EBIT margin to grow 17%, driven by its direct-selling mix shift initiative that could see the retailer "dramatically increase prices and inventory turns."

The analysts also forecast Nike to hit 13% five-year EPS CAGR and 6% five-year sales CAGR as it recaptures market share after regaining brand momentum.