Nike remains 'in the penalty zone': why an analyst dropped her buy recommendation

Piper Sandler refused to recommend buying shares of sportswear manufacturer Nike. Even after the collapse by a third since the beginning of the year, the securities remain expensive and lack short-term growth drivers, according to the bank's analysts.

Investment bank Piper Sandler downgraded Nike securities from "above market" to neutral and lowered the target price from $60 to $50. The new target implies growth of 13% relative to the close of trading on April 9.

Nike shares are trading at a multiple, which reflects the ratio of price to expected earnings per share for fiscal 2028, of 22, which doesn't look attractive to investors, according to Piper Sandler. "That said, there are no reasons for growth, so the securities are likely to remain 'in the penalty zone,'" CNBC quoted analyst Anna Andreeva as saying.

The retailer's sales are likely to slow due to increased competition in key segments for Nike, such as sportswear, predicts Piper Sandler. "Worryingly, the sportswear segment is becoming over-saturated, with purchase frequency rates at peak levels," notes Andreeva. - The segment occupies about 37% of the market and is becoming more mature: many brands look similar, and demand is increasingly shaped by new players (like Salomon) rather than traditional leaders [like Nike]."

Deterioration of the rating occurred against the background of a weak sales forecast Nike, presented in late March. The company expects a 2-4% annualized revenue decline in the fourth fiscal quarter, while analysts polled by LSEG expected a 1.9% growth.

In addition to Piper Sandler, at least three other U.S. investment banks downgraded Nike securities: BofA, JPMorgan and Goldman Sachs. The banks explained this decision by weak demand for the company's products and unmet expectations from the introduction of product innovations.

The weak sales forecast had a negative impact on the company's quotes: since the beginning of the year Nike securities have lost 31%. On April 10, they fell in price by 2.4%.

Meanwhile, Wall Street's average target price is $61.9, indicating a potential upside of 40%.

According to MarketWatch, 19 out of 37 analysts tracking the company's dynamics recommend its shares to buy, 16 take a neutral stance and two - advise to sell. For comparison, three months ago Nike had 22 bullish ratings.

This article was AI-translated and verified by a human editor