On Friday, Telsey Advisory Group adjusted its outlook on Nike Inc (NYSE:NKE), reducing the share price target to $115 from the previous $120 while maintaining an Outperform rating on the stock. The decision comes as Nike shifts its strategy to reignite its brand's appeal, focusing on four key areas: enhancing product innovation, emphasizing sports, managing inventory lifecycle, and improving wholesale presence.
The company's new direction is expected to have a short-term negative impact on sales and profitability in the first half of fiscal year 2025 (1HF25), with projections now indicating a low single-digit (LSD) decrease versus the FactSet consensus, which anticipated a 5% increase. This transition is also set to shift revenue streams from digital channels back to wholesale operations.
Despite the anticipated downturn in the first half of the next fiscal year, Nike forecasts a rebound in the second half (2HF25), with predictions of revenue growth and operating margin expansion for the full fiscal year 2025.
The initial revenue decline in 1HF25 came as a surprise to analysts, who had expected a return to growth. Nonetheless, the belief is that the slowdown will be temporary, and consumer response will strengthen as Nike introduces more new product innovations.
The revised price target of $115 is based on a price-to-earnings (P/E) multiple of approximately 28 times the forecasted fiscal year 2025 earnings per share (EPS) of $4.05, which has been adjusted down from the previous estimate of $4.20. This reflects the firm's confidence in Nike's long-term growth potential despite the near-term challenges.
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