UBS Pounds the Table on Nike Inc (NKE)

UBS analyst Michael Binetti is rallying around Nike Inc (NYSE:NKE) following a recent stock pullback. Let’s take a closer look at why one analyst thinks Nike could be a slam dunk.

The analyst explains that F4Q futures will be the first hint at the post-Olympic growth rate for Nike. The analyst estimates global futures growth of +11% noting, “if NKE can deliver a +11% global futures growth in F4Q, it would imply a +HSD run rate post-Olympics – which should bolster conviction that NKE still has wholesale order growth to deliver its +HSD/LLD FY17 rev growth guidance, which should support P/E re-expansion vs the market.”

Despite being bullish on the stock, Binetti concedes that slower U.S. basketball trends have been contributing to investor concerns. He explains that basketball comprises approximately 12.4% of Nike’s global sales. Notwithstanding this concession, the analyst expounds Nike’s sell trends in stores that do not retail basketball related products have not slowed at all. The analyst states, “Growth at China sports retailers remains solid… We don’t think slower b’ball trends will cause N America futures to decelerate to +MSD or worse. We estimate +8% NA futures in F4Q.”

A significant P/E compression could mark a better entry point for potential investors, according to the analyst. The analyst articulates, “we think NKE’s F4Q update will bolster conviction that FY17 rev & EPS guidance us still achievable – which should support a P/E re-rating back to historical averages.” Binetti expands that he is still forecasting Nike’s EPS to grow 2.5x faster than expected S&P growth for the next three years, and believes that Nike continues to merit a healthy premium vs the market.

Binetti sees a solid entry point for investors seeking a stake in Nike, reiterating a Buy rating on the stock with a 12-month price target of $70.00.

According to TipRanks analytics, 79% of analysts issue a Buy rating for Nike, while the remaining 21% maintain a Hold rating for the stock. The consensus price target for NKE is $67.46, marking a 28% upside from current prices.Screen Shot 06-28-16 at 11.42 AM

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