Nike demoted to Barclays ahead of earnings (NYSE:NKE)

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Joe Raedle

Barclays has indicated that it can no longer recommend Nike (NYSE: NKE) ahead of earnings on Sept. 29 due to rising risks outweighing potential rewards next year.

Downgrade from “Overweight” to “Equal Weight” was driven by decline in wholesale demand, continued lockdown risks and general sales volatility in China, high inventory levels and currency headwinds that are having a particularly large impact in Europe, the note explains.

“We believe NKE could generate 1Q23 online sales and EPS if they again pull back on demand creation,” the note said. “However, we believe such a composition of the quarter would be of poor quality, and we are more interested in current and future demand trends and future margin risk.”

The report adds that excess inventory is likely to exacerbate pressure on margins, with significant promotional activity expected at the end of the year. As such, “additional EPS risk” is expected in the spring of 2023 that the nearly 35% decline in equities so far in 2022 has yet to factor in, Barclay analysts say.

“Despite the already cautious investor sentiment, we believe margin expansion will be more difficult over the medium term, and therefore earnings pressure could make it difficult for NKE to break out of a trading range in the 12-18 coming months.”, the note concluded.

Along with the downgrade to a Hold-equivalent rating, Barclays reduced its price target to $110 from $125 previously.

Shares of Nike (NKE) fell 2.29% in premarket trading on Tuesday, erasing much of the stock’s gains on Monday.

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