Jefferies maintains Nike stock Buy rating with $115 target

Jefferies reiterated a Buy rating on Nike with a $115 price target, citing the company's innovation focus and renewed wholesale strategy, including its Amazon partnership, as key to gaining market share amid slowing growth from competitor HOKA (+10% YoY vs. previous quarters of +24% and +35%). While competitor On Holding (ONON) shows robust revenue growth, analysts suggest its higher valuation multiples and limited market reach due to higher price points may present challenges compared to Nike's global brand recognition and diverse pricing strategy; On Holding's strong Q1 performance led to price target increases from Stifel, TD Cowen, and Truist.

Analysis

Jefferies has reiterated a Buy rating for Nike (NKE) with a $115.00 price target, citing slowing sales growth at competitor HOKA as a potential opening for Nike to regain market share. HOKA's year-over-year sales growth decelerated to +10% in its fourth fiscal quarter, a significant drop from +24% in the third and +35% in the second fiscal quarters. In contrast, competitor On Holding (ONON) reported robust last-twelve-months revenue growth of 34.92% and a strong first-quarter performance with 43% growth in constant currency revenue, leading to price target increases from Stifel, TD Cowen, and Truist. Nike's strategy involves an intensified focus on innovation and recalibrating wholesale channels, exemplified by its partnership with Amazon and a recent deal with URBN, alongside an anticipated Nike-SKIMS apparel launch. Despite Nike's stock trading near a 15-year low on an enterprise value-to-sales basis, its global brand recognition, diverse price points catering to a substantial total addressable market, and established lifestyle brand identity are seen as key strengths. Conversely, On Holding, while exhibiting impressive gross profit margins of 60.62% and strong revenue growth, trades at elevated valuation multiples (P/E of 76.7) and has a more limited market reach due to higher price points and a smaller apparel presence compared to Nike. The merger between Dick’s Sporting Goods and Foot Locker is also anticipated to benefit brands like On by expanding their market reach in the U.S.

Key Decisions for Investors

• Investors may consider Nike's current valuation, which is near a 15-year low on an EV/Sales basis, as a potential entry point, given its strategic initiatives to reignite growth and regain market share.
• Monitor the effectiveness of Nike's renewed wholesale strategy, including partnerships with Amazon and URBN, and the consumer reception of new product launches like Nike-SKIMS, as these are key to its turnaround.
• For On Holding, while recent performance and analyst upgrades are positive, investors should be mindful of its high valuation multiples and assess whether its growth trajectory can sustain these levels, especially considering its niche market positioning compared to Nike.
• Evaluate the competitive dynamics in the athletic footwear market, particularly the impact of HOKA's slowing growth and ONON's continued momentum, on Nike's ability to capture market share.