Canaccord Reiterates Mixed Ratings on Nike Inc (NKE) and Sonic Corporation (SONC) as Earnings Reveal Reasons to Be Concerned

Canaccord analysts weigh in on athletic retailer Nike Inc (NYSE:NKE) and restaurant chain Sonic Corporation (NASDAQ:SONC), highlighting concerns in relation to a growing landscape of competition for Nike, while lowering both EPS estimates and price target for Sonic on the back of a fiscal comp slowdown. Let’s take a closer look:

Nike Inc

Yesterday, Nike posted fiscal first quarter results that Canaccord analyst Camila Lyon believes “reveals reasons to be concerned.” From the analyst’s perspective, the athletic retailer’s quarterly print is “peppered with red flags” and in reaction, Lyon reiterates a Hold rating on NKE with a price target of $52, which represents a 6% downside from where the shares last closed.

NKE reported EPS of 73c, which did outclass both Lyon’s expectation of 58c as well as the Street’s estimate of 56c, thanks to a 2% tax rate that boosted EPS by 13c, while lowering SGA. Also in the retailer’s favor, revenue growth hit 7.7% reaching $9.1 billion, which beat Lyon’s forecast of 6% and the Street’s estimate of $8.87 billion.

However, gross margin fell significantly below the analyst’s expectations, -200bps against a 100bp guide. Moreover, while global futures of 7% (cc) rose above Lyon’s 6% estimate, they fell under consensus of 8%. For Lyon, the “disconcerting surprise” within future orders was a weak result within North America future orders, which the analyst criticizes is a “paltry” 1% compared to Lyon’s 4% projection and the Street’s 4.4% expectation. Lyons explains this very well could be a reflection of the “competitive landscape shifting toward Adidas and UA.”

The analyst believes, “Lastly and most troubling is guidance which implies the 2H revenue growth to not only accelerate but nearly double the pace of 1H growth to 11% while comparing against the Olympics-boosted growth last year. Given the moderating futures, we are hard pressed to see how NKE will realize that level of acceleration given the intensifying competitive landscape.”

“All in all, this quarter raised more questions than it answered. In our opinion, NKE is having to navigate an environment it has not seen for years, one in which consumer preferences are shifting elsewhere and which likely does not change course for the foreseeable next 6-9 months,” Lyon concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Camilo Lyon is ranked #1,509 out of 4,185 analysts. Lyon has a 48% success rate and gains 1.2% in his yearly returns. When recommending NKE, Lyon realizes 0.0% in average profits on the stock.

TipRanks analytics exhibit NKE as a Buy. Based on 22 analysts polled in the last 3 months, 14 rate a Buy on NKE, while 8 maintain a Hold. The consensus price target stands at $62.05, marking a 12% upside from where the stock is currently trading.

Sonic Corporation

Sonic Corporation reported a fiscal fourth-quarter earnings pre-announcement yesterday indicating both comps and EPS that drove shares down 7% in post-market trading. Canaccord analyst Lynne Collier found the primary results to be “disappointing,” and though the analyst reiterates a Buy rating on shares of SONC, she cuts the price target from $35 to $32.

Though the analyst already anticipated a shortfall in SONC comps, both the company’s SSS and EPS still fell slightly under Collier’s revised projection, with SSS at -2.0% compared to Collier’s updated and lowered forecast of -1.3% and consensus of 0.5%. As a result, Collier trims her EPS estimate further from $1.50 to $1.47 and for the fiscal year of 2018, Collier tweaks her EPS estimate from $1.70 to $1.69. Additionally, Collier reduces EBITDA for the fiscal year of 2018 to $167.4 million.

Collier asserts, “While we continue to expect near-term volatility in the stock, we see the risk reward as favorable based on a 12-month investment time horizon. Our BUY thesis is predicated on the following: (1) the company’s movement to a 95% franchise model (from 89%) over the next year; (2) strong FCF (share repurchases + attractive dividend; (3) upcoming new product pipeline is more differentiated and will have less reliance on ice cream sales going into the fall/winter months; (4) compelling valuation vs. its franchise peers.”

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, four-star analyst Lynne Collier is ranked #491 out of 4,185 analysts. Collier has a 70% success rate and garners 10.4% in her annual returns. When recommending SONC, Collie yields 14.8% in average profits on the stock.

TipRanks analytics demonstrate SONC as a Buy. Based on 4 analysts polled in the last 3 months, 50% rate a Buy on SONC, while 50% maintain a Hold. The 12-month price target stands at $32.00, marking a nearly 17% upside from where the shares last closed.screen-shot-09-28-16-at-04-44-pm

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