Morgan Stanley Warns $NKE's Best Quarter This Year May Be Behind It
$NKE topped profit estimates in its first-quarter report on Oct. 1, but investors sold the stock anyway. Morgan Stanley said the quarter was "likely the year's high-water mark" and expects the rest of Nike's fiscal year, which ends in May 2027, to look worse.
Nike earned 48 cents a share, ahead of the 44 cents expected. Sales to retailers in North America rose 9%, while Nike Direct, its own stores and apps, shrank in every region. Morgan Stanley flagged the risk that unsold shoes pile up at retailers and force discounts that could hurt the brand.
Nike expects fiscal 2027 revenue to fall by a high single-digit percentage, versus the roughly 2% decline analysts had expected, according to Reuters. Morgan Stanley said the guidance implies earnings per share falling roughly 50% over the final three quarters at the midpoint. The bank cut its fiscal 2027 EPS forecast by more than 30% to $1.15, the bottom of Nike's guided range.
Other key points:
- Nike's Pace restructuring is expected to save about $2.5 billion through fiscal 2031, with most savings landing in fiscal 2029 and 2030. More layoffs are coming, with job decisions starting in 2027, according to CNBC.
- Shares trade at their lowest level since 2013, down about 45% this year.
- Morgan Stanley cut its price target to $27 from $31 and kept its Underweight rating. Citi stayed neutral, DZ Bank downgraded to Sell, and Jefferies stayed at Buy but cut its target to $60.
- The 42 analysts tracked by Stock Analysis rate Nike a consensus Hold, with an average price target near $41.
- Nike traded near 26 times expected earnings after the drop, above its 10-year average of about 24 times. Morgan Stanley's work suggests a multiple closer to 16 times, implying a stock price near $20.
- Nike's 41-cent quarterly dividend adds up to more per year than its adjusted earnings guidance, though $8.4 billion in cash and short-term investments makes the payout look safe for now.
Nike's investor day is on Nov. 16 and 17, where management will lay out a five-year financial outlook.
