(Original title: Go against the Bank of America! Morgan Stanley: Nike (NKE.US) falls and Adidas is full)
Zhitong Finance has learned that Morgan Stanley analysts said that at a time when rival Nike (NKE.US) is struggling in product innovation, the fashion trend of sports shoes is turning to Adidas. Morgan Stanley analysts such as Edouard Aubin and Grace Smalley said that as the trend develops, people are no longer wearing Nike brand’s thick basketball shoes and are instead wearing more casual, rubber-soled Adidas sneakers.
Morgan Stanley raised Adidas’ rating from “underweight” to “overweight” and raised its target price from 175 euros to 235 euros.As of press time, Adidas rose 4.4% to 205 euros on the German stock market. Among analysts tracked by the agency, Adidas currently has 15 “buy” ratings, 14 “hold” ratings, and 6 “sell” ratings. Adidas’ shares are up 11% this year, while Nike’s shares are down more than 15%.
Analysts at Morgan Stanley wrote in a note on Monday: “Our latest round of channel research shows a clear change in adidas’ future outlook for lifestyle products, indicating an underlying and expanding sell-out trend. Very strong.” They said Adidas could “opportunistically benefit” from Nike’s stagnant innovation while adopting a “more sensible pricing approach” than its U.S. rivals.
Nike’s lack of freshness has been a source of downbeat commentary on Wall Street, with one analyst commenting last month that the sneaker and apparel maker was “losing its luster.”Last week, the company held the Nike Air Innovation Summit in Paris, where it launched new products to revive the company’s revenue.
Morgan Stanley said that it had previously given the company an “underweight” rating because investors were skeptical of Adidas. The clothing maker has suffered a series of setbacks, including ending its partnership with rapper Kanye Ye’s Yeezy and losing sponsorship rights to the German national soccer team to Nike.
Analysts at Morgan Stanley wrote: “With Adidas CEO Bjorn Gulden almost 18 months into the job, our survey shows that adidas’ performance and lifestyle brands are improving due to improved marketing and wholesale service levels and an increasingly favorable market backdrop. Positive product sentiment has improved, and we believe this growing revenue momentum is strong and now more than offsets the risks to the story.”
In contrast, Morgan Stanley previously issued a report, lowering its target price from $124 to $116 based on lowering its mid-term revenue and earnings assumptions for Nike.The bank lowered its revenue and profit forecasts for Nike’s fourth fiscal quarter ending in May this year, based on quarterly sales and gross profit margin guidance being lower than earlier assumptions. The bank now forecasts quarterly sales growth of 1% year-on-year, down from its earlier forecast of 3% growth. The quarterly profit forecast is $0.80 per share, down from the earlier forecast of $0.91, but still above management’s guidance of $0.77 to $0.78, based on management’s more conservative view of revenue and selling and general administrative expenses. The bank also lowered its revenue and profit forecasts for Nike’s next fiscal year starting in June this year, from a year-on-year increase of 9% and US$4.57 per share, respectively, to a year-on-year increase of 2% and a US$3.77 per share, to reflect the lower management expectations. The outlook for revenue in the first half of the fiscal year is a low-single-digit decline, which is worse than the mid-single-digit growth originally expected by the market.
Bank of America “sings the opposite tune”: New products will accelerate Nike’s recovery and raises rating
Contrary to Morgan Stanley’s view, Bank of America said Nike’s expectations “finally look achievable.” Bank of America has turned bullish on Nike as it looks to return to growth after a string of weak results.
Bank of America analyst Lorraine Hutchinson upgraded its rating to “buy” from “neutral” and raised the target price to $113 from $110.The analyst noted that Wall Street’s expectations for Nike’s fiscal 2025 profits have fallen 35% over the past two years. Hutchinson said the company’s plan to turn around the business by focusing on product innovation and cutting out some styles will be painful in the short term but have important implications for the brand’s long-term health. “This resulted in a lower guidance for first-half fiscal 2025 revenue, which we believe contributed to the eventual reduction to consensus estimates,” Hutchinson wrote in a note to clients last Thursday.
Nike warned investors last month that sales would take a hit as the company grapples with growing challenges from emerging running shoe brands such as ONON and Hoka.Hoka is a brand owned by DECK Outdoor Company (DECK.US), and its popularity has surged in recent years. Nike said it will divest its sneaker products from some classic styles, including the Air Force 15 and Pegasus running shoes.
RBC Capital Markets, Williams Trading and Oppenheimer have all downgraded Nike in recent weeks. However, Hutchinson’s upgrade suggests Nike can overcome its near-term challenges. The analyst noted that Nike’s price-to-earnings valuation is “extremely attractive” relative to the S&P 500 following the decline.
Hutchinson noted that Nike’s innovation has lagged behind in recent years, adding that the key to returning to growth for the world’s largest sportswear retailer is the development and launch of new products. At the above-mentioned Paris innovation event, Nike released new Nike Air products to the media. Hutchinson said: “Management has acknowledged the need for significant changes, and continued adjustments to the team and processes brought about by recently announced cost-saving plans may also stimulate sales to stabilize more quickly.”