Nike (NKE), the global leader in athletic footwear and apparel, has once again secured a top spot on Wall Street’s radar. Jefferies recently upgraded Nike stock to “Buy” from “Hold” and raised its target price to $115 from $75. The new price target suggests a 37% increase from current levels. Jefferies also referred to the stock as its “new stock pick,” citing key factors that support the company’s long-term growth potential and market leadership. Nike is scheduled to report third-quarter earnings for its fiscal 2025 on March 20.
Valued at $116 billion, Nike stock has gained 3.6% in the year to date, outperforming the S&P 500 Index ($SPX). Let’s see why Jefferies is bullish on Nike and whether the stock is a buy before earnings.
Nike Is Resilient
What’s most impressive about Nike is its unparalleled brand strength. As the world’s leading sportswear company, Nike continues to enjoy strong consumer loyalty, particularly among younger generations. Quality and brand loyalty give it a competitive advantage over rivals like Adidas (ADDYY), Under Armour (UAA), and Puma. However, the company has experienced near-term headwinds such as supply chain disruptions and inflationary pressures, which Jefferies believes are only temporary.
In the recent second quarter of its fiscal 2025, Nike’s revenue dipped 8% to $12.4 billion, while diluted earnings per share (EPS) declined 24% to $0.78. Gross margin stood at 43.6%. The company’s cash, cash equivalents, and short-term investments totaled $9.8 billion at the end of the quarter.
Jefferies is impressed with Nike’s new CEO, Elliott Hill, who “has been tackling product and distribution issues head on,” positioning the company for new growth and market leadership. Elliott Hill took over the role in October 2024. Despite recent struggles, Jefferies stated that Nike’s brand strength remains strong. According to the firm’s most recent survey data, Nike’s problems were primarily self-inflicted rather than the result of significant competitive threats. This suggests that the company has a clear path to recovery as it focuses on operational efficiencies and strategic initiatives.
During the Q2 earnings call, Hill revealed his plan to reposition the company for long-term success. One of Hill’s main observations was that Nike had lost its “obsession with sport.” Nike will now shift its focus from relying on a few popular sportswear products to leveraging deep athlete insights to drive product innovation. Furthermore, Hill believes Nike’s recent emphasis on digital sales has had an impact on the overall health of its marketplace. As a result, the company will abandon excessive discounting in favor of a premium pricing strategy, ensuring Nike’s continued dominance in the sports apparel and footwear markets. Hill intends to prioritize innovation and brand storytelling, as well as expandin the company’s partnerships and market presence.
Nike’s repositioning efforts may have a short-term financial impact, but Hill is looking ahead. He is confident that investing in product, brand, and marketplace strategies will result in long-term profit growth. Aneesha Sherman, a Bernstein analyst, echoes the same, reiterating her “Buy” rating on Nike stock. Sherman stated that, despite a decline in recent years, Nike is actively strengthening its position by expanding its product lineup and improving retailer relationships. Sherman also mentions a significant expansion in Nike’s order books, which supports expectations of market share growth in the coming years.
Analysts predict third-quarter revenue of $11 billion, with earnings per share of $0.29. This compares to revenue of $12.4 billion and diluted EPS of $0.77 in the same quarter last year. For the full-year fiscal 2025, analysts predict a 10.4% drop in revenue to $46 billion, followed by a 47% decline in earnings. However, revenue and earnings are expected to rebound by 1.7% and 13.5%, respectively, in fiscal 2026.
Nike’s stock appears to be overvalued, trading at 38.6 times forward earnings for 2026. However, I believe its current valuation provides an appealing entry point for investors who believe the company is on the verge of recovery.
Furthermore, its shareholder-friendly policies, such as share buybacks and dividends, increase its appeal as a reliable income stock. Nike has a forward dividend yield of 2.1%, which exceeds the consumer discretionary average of 1.89%. Furthermore, the forward payout ratio of 53.2% is sustainable. The company paid out $557 million in dividends and repurchased shares worth $1.1 billion as part of its four-year $18 billion share repurchase program. Nike has also raised its dividends for the past 23 years, with the most recent quarterly dividend increase of 8% to $0.40 per share in November 2024. Nike is on the verge of joining the S&P 500 Dividend Aristocrats, a group of companies that have increased their dividends for the past 25 years.
What Does Wall Street Say About Nike Stock?
On Wall Street, Nike stock is rated as a “Moderate Buy.” Of the 33 analysts who cover the stock, 16 rate it as a “Strong Buy,” one as a “Moderate Buy,” 14 as a “Hold,” and two as a “Strong Sell.” The average analyst target price of $84.23 for Nike implies a 7.4% increase over current levels. Furthermore, its Street-high estimate of $120 suggests that the stock could rally by up to 53% over the next year.
With a renewed strategic focus and strong brand positioning, Nike appears poised for a turnaround under Elliott Hill’s leadership. As the company works to overcome its challenges, macroeconomic conditions improve, and consumer spending recovers, Nike will emerge stronger. Meanwhile, risk-averse investors can monitor if the projected recovery materializes as expected.
