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2022-01-03 18:52

Nike Inc closed 2021 with a nearly 20% gain, and Guggenheim’s Robert Drbul is convinced the stock will replicate similar performance this year as well.

Drbul sees an about 20% upside in Nike
Drbul upgraded Nike to “buy” this morning and added the stock to his list of top ideas for 2022. The analyst has a price target of $195 on Nike that represents a close to 20% upside from here. In his note, Drbul wrote:

Nike is the leader in the athletic (and broader active/athleisure) industry with favorable secular tailwinds. While concerns on geopolitical issues linger for Nike in China, we are confident in its brand strength and its innovative leadership in the region.

Nike is facing production delays as Vietnam continues to suffer from lockdowns related to the ongoing pandemic. Shipments are also taking longer to arrive due to COVID-19 restrictions. Nonetheless, Drbul says the long-term financial framework for Nike still remains strong.

The brand commands dominant market share that will grow as digital scales further, new product innovation remains robust, and heavy investment behind key growth drivers continues, while some global peers operate more cost-consciously in an uncertain environment.

The Guggenheim analyst also raised his EPS estimate for Nike from $4.50 to $4.85 in 2023. He now expects $5.70 in per-share earnings in 2024 versus his previous estimate for $5.27.

Drbul's upgrade comes more than a week after Nike reported market-beating results for its fiscal second quarter. The American multinational also wants to set it up as a potential beneficiary of the metaverse. To that end, it bought RTFKT last month – a Utah-based virtual shoe company.

Tim Seymour agrees with the bullish call
On CNBC’s “The Exchange”, Seymour Asset Management’s Tim Seymour, who also owns the stock, agreed with the bullish call and said the stock deserved to trade at a premium.

I own it, I love It. They’ve made investments in logistics and ERP, and the DTC business. It’s a company that continues to have U.S. comps in North America that are blowing away. The problem is valuation. But I think the stock deserves a premium.

On the contrary, however, Nancy Tengler of Laffer Tengler Investment recommends waiting for Nike to pull back a little before investing in the stock since at a yield of 0.75, the ROI is not exciting at current levels.

I think Nike has done a lot of things right. They get about 18.5% of their sales from China, and they’ve been able to thread that needle very nicely as opposed to some other retailers. But we don’t own it because of valuation. I love the brand, I own it personally, but I’d advise to wait for a pullback.