The retail sector has suffered during the pandemic, as the shutdown of stores across the globe caused sharp revenue downturns amongst a plethora of names, big and small.
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Sportswear giant Nike (NKE) hasn’t been immune to the devastation laid down by COVID-19. During fiscal Q4 2020, in major regions, 90% of Nike stores were closed for two months, with total sales dropping by 38%.
However, Nike has countered this decline with an impressive pivot towards the digital realm. In the same quarter, digital sales increased by 75% year-over-year, and made up 30% of total revenue.
Guggenheim analyst Robert Drbul views Nike’s digital success as one of several reasons why the global swish machine is the investment firm’s Best Idea.
To this end, Drbul reiterated a Buy rating on Nike shares and increased the price target from $115 to $150. What’s in it for investors? Upside potential of 26%. (To watch Drbul’s track record, click here)
Drbul expects Nike to keep up the digital momentum and believes its growth is still “under-appreciated.” By FY23, the 5-star analyst thinks digital sales will make up 50% of all Nike sales.
Drbul also argues Nike’s opportunity in North America is being overlooked. With two of its main rivals, Under Armour and Adidas, both displaying “weakening pre-COVID growth trajectories,” the scene is set for Nike to take more market share.
Add into the mix Nike’s “spending power,” which the company can use for demand creation (i.e., marketing spend) “to further separate from peers,” and it all results in a glowing assessment.
Drbul said, “Nike is the leader in an athletic (and broader active/athleisure) industry with favorable secular tailwinds (health/ wellness, casualization, increased fitness activity, and rising sport participation & emerging middle classes across the globe). The brand commands dominant market share 38% for footwear, 13% for apparel, both #1, per Sporting Goods Intelligence data), which we expect will grow materially from here as a result of the drivers discussed above, accelerated by the COVID-19 pandemic (the strong get stronger).”
Turning now to the rest of the Street, investors are presented with a conundrum. On the one hand, based on 22 Buys, 3 Holds and 1 Sell, the stock has a Strong Buy consensus rating. However, the analysts expect shares to remain range-bound for the foreseeable future as indicated by the $118.82 average price target. (See Nike stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
