Nike spikes to record high after Goldman boosts its rating to 'buy' (NKE)

Shares of Nike rose 1.3% Friday to an all-time high following the upgrade.
Goldman boosted its forecast for Nike following an analysis that showed it's poised for growth in China and is popular among young consumers in North America.
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Shares of Nike rose 1.3% Friday to an all-time high after gaining another Wall Street bull.

Goldman Sachs boosted its rating on shares of the retailer to "buy" on Thursday, and raised its price target to $112 from $95. That implies that the stock could surge nearly 17% from Thursday's close of $95.79 per share.

"We believe Nike is on the cusp of a sharp acceleration in EPS growth," a team of Goldman Sachs analysts led by Alexandra Walvis wrote in a Thursday note.

That growth, plus higher margins and a strong expansion in returns why Goldman increased its estimate and price target. Goldman expects forward three-year earnings-per-share compound annual growth rate of 19%, over 5% in the prior three-year period, and its 2022 earnings-per-share forecast of $4.22 is 5% ahead of consensus, according to the note.

Goldman outlines a number of tailwinds for the brand going forward. The top one is Nike's presence in China, where Goldman thinks the business can grow at nearly three times the rate of other regions over the next three years.

This is important because Goldman argues that the country's activewear market could deliver double-digit growth while China's apparel and footwear market overtook the US in size in 2018, activewear still makes up a disproportionately small portion of the sector, according to the note.

But that's poised to change, Goldman says, because of increased support for athleticism and consumption by the Chinese government.

"We argue that the athletic category has huge momentum in China," Walvis wrote. She continued, saying Nike's success in the region "drives our confidence that Nike can grow revenues at a high teens pace," driven by its direct-to-consumer offerings.

In addition, Nike is showing promise in North America in its appeal to Generation Z shoppers and women, Goldman said.

youth Goldman Sachs

"Nike brand is resonating most among younger consumers, positioning the brand well for growth as this cohort ages and grows into spending power," according to the note.

There's also evidence that consumers are sticking with the brand through controversy, such as the Colin Kaepernick ad in 2019, Goldman said. While consumer affinity to Nike dropped sharply after the ad aired, the decline was less harsh among younger consumers, Walvis wrote.

And, across regions, Nike's pivot towards direct-to-consumer through Nike.com and a "nascent yet powerful app ecosystem" are accelerating, Walvis wrote, driving Goldman's forecast for strong margin expansion.

Nike has a consensus price target of $103.26 and 25 "buy" ratings, eight "hold" ratings, and two "sell" ratings, according to Bloomberg data.

Nike is up nearly 30% year-to-date through Thursday's close .

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