On Wednesday, BofA Securities maintained a Buy rating on Nike Inc (NYSE:NKE) shares with a steady price target of $100.00. The firm's projection for the third quarter of fiscal year 2024 anticipates a group revenue of $13.2 billion, marking a 15% year-over-year increase, and earnings per share (EPS) of $1.97, a 14% rise from the previous year.
These figures are slightly above the consensus, with BofA expecting a repeat of the solid performance seen in the second quarter, driven by continued strength in key products such as Symbicort and Farxiga.
BofA anticipates robust sales from Nike's key oncology franchises, aligning closely with consensus forecasts. However, the firm predicts lower collaboration revenue and other operating income (OOI) compared to consensus, with no extraordinary items expected in the quarter.
This leads to a slight downward adjustment to the consensus figures. Moreover, BofA forecasts higher research and development (R&D) spending at 22.6% of sales, which is $200 million more than the consensus and aligns with Nike's guidance for R&D to be at the higher end of the low 20s percentage range.
Despite forecasting lower one-off income and higher R&D expenses, which result in an EPS that is mid-single-digit percentage below consensus, BofA's projections remain at the top end of Nike's full-year guidance for fiscal 2024, matching the consensus. The firm's estimates for fiscal year 2025 EPS are also in line with consensus, with a slight increase in sales expected to be balanced by marginally higher costs.
For the years 2024 to 2026, BofA's EPS estimates are slightly increased due to adjustments in cost expectations. The firm's positive outlook on Nike reflects an anticipation of strong sales and revenue growth, despite the potential for increased investment in research and development.
In other recent news, Nike Inc. has seen several critical developments. The company reported first-quarter earnings per share that exceeded expectations, despite forecasting an 8-10% revenue decline for the second quarter due to challenges in its Classics footwear segment and macroeconomic conditions.
Amid these changes, Nike withdrew its full-year guidance, allowing incoming CEO Elliott Hill to reassess the company's strategy. Nike's management projected an 8-10% decrease in second-quarter sales and a 150 basis point decrease in gross margin.
Several analyst firms have adjusted their financial outlooks for Nike. For instance, Truist Securities revised its price target for Nike to $83, maintaining a Hold rating, while UBS raised Nike's price target to $82, keeping a Neutral rating.
Baird maintained an Outperform rating on Nike with a $110 price target, expressing confidence in a multi-year earnings recovery, particularly with the appointment of Elliott Hill as the incoming CEO. Telsey Advisory Group lowered its price target for Nike to $96 but maintained an Outperform rating, and RBC Capital cut Nike's price target to $82, citing a slower-than-expected product pivot.
These recent developments reflect cautious optimism among analysts about Nike's long-term financial prospects, despite near-term challenges and uncertainties. The incoming CEO is expected to play a critical role in steering the company's strategy moving forward. Despite the challenges, Nike remains optimistic about long-term opportunities, particularly in China. These are the recent developments surrounding Nike Inc.
InvestingPro Insights
To complement BofA Securities' analysis of Nike Inc (NYSE:NKE), recent data from InvestingPro offers additional context for investors. Nike's market capitalization stands at $133.64 billion, reflecting its significant position in the Textiles, Apparel & Luxury Goods industry. The company's P/E ratio of 23.74 suggests that investors are willing to pay a premium for Nike's earnings, which aligns with BofA's optimistic outlook on the company's future performance.
InvestingPro Tips highlight Nike's strong dividend history, having raised its dividend for 22 consecutive years and maintained payments for 41 years. This consistent dividend growth, currently yielding 1.66%, may appeal to income-focused investors. Additionally, Nike's ability to cover interest payments with its cash flows indicates financial stability, supporting BofA's positive stance on the company.
However, it's worth noting that Nike's stock has shown a strong return over the last three months, with a 17.74% price total return. This recent performance, coupled with an InvestingPro Tip suggesting the stock may be in overbought territory based on its RSI, could indicate that some of the positive expectations may already be priced in.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Nike, providing a deeper understanding of the company's financial health and market position.
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