Will Nike’s Q4 Results Help Its Stock Rise?

Several analysts raised their target price for Nike (NYSE:NKE) stock before the company’s fourth-quarter results. Nike will likely announce its results for the fourth quarter of fiscal 2020 after the financial markets close on June 25. Today, Credit Suisse raised its target price for Nike stock to $114 from $92. Needham increased its target price to $113 from $80, while BTIG raised it to $117 from $108. Also, Susquehanna lifted its target price to $130 from $100.

On June 22, UBS, J.P. Morgan, and Piper Sandler also raised their target prices for Nike stock. The company delivered stellar results in the third quarter of fiscal 2020 despite COVID-19 impacting its China business. Nike’s fiscal third quarter ended on February 29. Temporary store closures since mid-March in the US and several other countries didn’t impact the third-quarter results. However, store closures related to COVID-19 will likely hurt the company’s fourth-quarter results.

Expectations from Nike’s Q4 results

Analysts expect Nike’s fourth-quarter revenue to decline 28.1% YoY (year-over-year) to $7.32 billion. The pandemic-related store closures have likely dragged down the company’s sales in the US, which is its largest market. Strong digital sales amid the pandemic might provide some respite.

Nike focused on its digital business before the COVID-19 pandemic. The company’s digital sales grew 36% in the third quarter. Notably, the company’s third-quarter digital sales in Greater China increased by over 30%. However, physical store closures in the third quarter led to a 5% fall in the overall Greater China revenue. The company’s total third-quarter revenue rose 5.1% YoY to $10.1 billion due to strength in geographical divisions other than Greater China.

Wall Street expects Nike’s adjusted EPS to decline to $0.08 in the fourth quarter of fiscal 2020 compared to $0.62 in the fourth quarter of fiscal 2019. Aside from a major decline in revenue, COVID-19 related expenses will likely hurt Nike’s fourth-quarter earnings.

Strong long-term prospects

Following analysts’ higher target prices yesterday and today, Nike’s average 12-month target price is $104.39. The target price indicates an upside of about 3%. Nike stock was down 1.8% year-to-date as of June 22. In comparison, Under Armour and Skechers stocks are about 56% and 27%, respectively. Meanwhile, Lululemon (NASDAQ:LULU) stock has risen 31% YTD as of Monday. Analysts are optimistic about Lululemon’s potential after the pandemic recedes and its growing digital sales.

Several analysts are optimistic about Nike’s long-term growth prospects. Currently, 28 analysts recommend a “buy” rating, five recommend a “hold,” and one recommends a “sell.” The company’s strong brand name, extensive geographical reach, and growing digital sales make it an attractive long-term purchase. Also, the rising focus on fitness will likely work in the apparel and footwear giant’s favor. Nike continues to innovate apparel and footwear while considering customers’ needs. The recent innovations include Alphafly NEXT%, Infinity React, and Air Zoom Pegasus 37. Compelling innovation will likely boost the company’s sales.

Based on Nike’s update on May 14, 100% of its owned stores and over 95% of its partner stores in Greater China and South Korea have reopened. Nike has also been gradually opening some of its stores in North America and other geographies. Investors will watch the sales trend in the stores that have reopened.