Truist Upgrades Nike Stock to Buy, Citing New Management’s Potential to Rekindle Interest

Analysts at Truist Securities have recently upgraded Nike stock to a Buy rating, fueled by optimism surrounding recent leadership changes within the company. The price target has been increased to $97, up from $83, indicating a potential upside of over 17% from Nike’s current trading price.

While the analysts recognize that the turnaround for Nike may be a lengthy and uncertain journey, they are confident that the new management team, which includes the return of long-time veterans such as Tom Peddie and incoming CEO Elliot Hill, can rekindle enthusiasm for the brand.

A significant component of this upgrade is the management’s renewed focus on rebuilding Nike’s wholesale relationships, which had been overlooked during its shift towards direct-to-consumer sales. Truist believes that reconnecting with retail partners, including major retailers, and possibly establishing a store on a prominent e-commerce platform could lead to notable growth.

“With Elliot Hill and Tom Peddie leading the way, we expect Nike’s initial strategic priorities to focus on re-engaging with retail partners,” the analysts stated.

The potential re-entry into the e-commerce platform is particularly highlighted as a possible turning point, especially in light of recent advancements in counterfeit prevention measures.

Though financial recovery may take time, Truist is optimistic about short-term opportunities, such as Nike’s increased investments in marketing and endorsement deals. The recent signing of WNBA star Caitlin Clark to a multi-million dollar contract is viewed as an underappreciated asset.

“While a fundamental recovery is likely a long-term endeavor, we anticipate that some immediate successes from the new team should be sufficient to demonstrate to investors that brighter days are ahead,” the analysts remarked.

In terms of valuation, Truist notes that while Nike shares are not “cheap,” their underperformance over the past year has created a favorable entry point for investors looking at long-term recovery prospects. Following three consecutive disappointments in earnings and guidance, Nike shares have plunged over 30% since December 2023, in contrast to a 22% gain for the overall market during the same period.

“Currently, shares are trading at approximately 28.5 times the projected next twelve months’ earnings per share. Nike’s roughly 32% premium to the stock market is considerably below the three-year average of about 60%,” the analysts explained.

“At these levels, we believe that qualitative improvements showing the new management team’s commitment to an aggressive turnaround strategy could lead to significant outperformance of the stock.”