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Nike and Lululemon Get Upgraded amid Coronavirus


Mar. 23 2020, Updated 8:28 a.m. ET

Nike (NYSE:NKE) stock got upgraded on March 20 before its earnings results for the third quarter of fiscal 2020. The stock rose 0.03% as of 1:40 pm on March 20. Bank of America upgraded the stock to “buy” from “neutral.” However, Nike stock fell 4.1% at the end of the trading session on March 20. The US stock market continued to fall due to the rapid spread of the coronavirus.

Also, Lululemon (NASDAQ:LULU) stock rose 6.6% on March 20 following an upgrade by Citigroup. As of March 20, Nike and Lululemon stocks have fallen 33.4% and 28.8%, respectively, year-to-date. So far, the S&P 500 and the Dow Jones have declined 28.7% and 32.8% in 2020.

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According to Seeking Alpha, Bank of America thinks that the current challenging environment could boost Nike’s momentum. The stock might gain additional market share. Notably, Bank of America thinks that the Air Force 1 and Air Jordan 1 styles in footwear and sportswear apparel will have favorable results due to the demand for athletic merchandise. Bank of America also thinks that Nike’s superior sourcing capabilities, vertically integrated supply chain, and more consolidated supplier base gives it an advantage in the current crisis.

Analysts’ ratings for Nike stock

Bank of America raised its rating for Nike stock but lowered its target price amid the coronavirus-led stock market turmoil. Bank of America lowered its target price to $85 from $105. On March 20, Credit Suisse also lowered its target price for Nike stock to $85 from $112. Recently, Nike and several other retailers announced a temporary closure of their stores to curb the coronavirus.

On February 26, HSBC downgraded Nike stock to “hold” from “buy” due to valuation concerns. HSBC also thought that risks related to profits from Chinese operations and forex headwinds could limit the upside to Nike stock.

Currently, Nike stock is rated as a “buy” by 25 out of 33 analysts. Six analysts have a “hold” recommendation, while two analysts have a “sell” recommendation. With an average target price of $98.71, analysts see an upside potential of about 46% in Nike stock over the next 12 months.

Nike will announce its earnings results for the third quarter of fiscal 2020 after the markets close on Tuesday. Analysts expect the company’s third-quarter revenue to rise 2.3% YoY (year-over-year) to $9.83 billion. They expect the company’s adjusted EPS to decline 11.8% YoY to $0.60.

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Nike exceeded analysts’ expectations in each of the first two quarters of fiscal 2020. Notably, the second-quarter adjusted EPS increased by about 35% to $0.70. The EPS exceeded analysts’ forecast of $0.58. The company’s second-quarter revenue grew 10.2% to $10.3 billion compared to analysts’ prediction of $10.1 billion. Strength in the Jordan brand, innovation, and digital sales drove the company’s results.

Lululemon stock upgraded

On March 20, Citigroup upgraded Lululemon to ”buy” from “neutral.” Citigroup is optimistic that the company’s strong e-commerce business will help it perform better than other players. Overall, Citigroup considers Lululemon a “stand out” given the company’s long-term earnings power. Citigroup maintained its target price for Lululemon stock at $190.

Currently, 19 out of 33 analysts covering Lululemon stock have a “buy” recommendation, while 14 analysts have a “hold” recommendation. None of the analysts have a “sell” recommendation. With an average 12-month target price of $249.57, analysts see an upside of about 51% in the stock.

Lululemon exceeded analysts’ revenue and earnings expectations for the third quarter of fiscal 2019. The company’s third-quarter revenue grew 22.5% to $916.1 million compared to analysts’ forecast of $899.7 million. Meanwhile, the adjusted EPS increased 28% YoY to $0.96 and beat Wall Street’s estimate by three cents. Overall, the company’s revenue grew 21.7% to $2.58 billion in the first nine months of fiscal 2019. A focus on the expansion of the men’s business, online sales, and international operations will likely drive Lululemon’s growth.

Lululemon is slated to announce its earnings results for the fourth quarter of fiscal 2019 on Thursday. Analysts expect the company’s fourth-quarter revenue to rise 17.9% YoY to $1.38 billion. They expect its adjusted EPS to increase by 21.1% to $2.24.

Nike and Lululemon might not able to issue a financial outlook due to uncertainty regarding the financial impact of the coronavirus.


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