By Sam Boughedda
UBS analyst Jay Sole lowered the price target on Nike (NYSE:NKE) to $168 from $173.00 Wednesday, maintaining a Buy rating and stating the company will likely beat guidance when it reports earnings on June 27.
Sole said in a note to investors they believe Nike's FY23 guide will imply EPS in the $4.10-$4.30 range, likely clearing the market's "bar" for the event, which, based on its conversations with investors, is under $4.
"We think better-than-expected guidance causes Nike's 24x P/E to increase. The options market is looking for a +/- 6.4% jump over the event vs. a 5.2% historical avg. move. We expect more volatility than 6.4%. The main risk is new, big China lockdowns emerge between now and when Nike reports on June 27th. This and elevated macro uncertainty are two extra reasons we see potential for high volatility," wrote Sole.
The analyst went on to explain four reasons why its guidance beats expectations. These include Nike's China outlook not being as bad as feared, Nike's strength across the rest of the world being underestimated, lapping last summer's Vietnam factory shutdowns making for easier compares, and Nike's move into the "next phase" of its marketplace strategy likely driving better than expected FY23 wholesale channel growth.
"Our conversations suggest Nike's challenges in China are widely understood and sentiment around this issue is very low. Our sense is 'good' news pertaining to China will help lift a major overhang around the stock," explained Sole.