Bank of America (BofA) downgraded Nike (NKE) from 'neutral' to 'underperform' and significantly reduced its price target to $30 from $47, implying a nearly 17% downside from Thursday's closing price. This move reflects BofA's increasing concerns about Nike's ability to turn around its struggling business, with analyst Lorraine Hutchinson stating that 'Risks are rising.' The investment bank now forecasts negative sales growth for Nike through fiscal year 2027, a reversal from its prior expectation of a spring inflection. BofA's fiscal 2027 earnings per share (EPS) estimate is now 14% below the Visible Alpha consensus, and it also lowered its fiscal 2027 and 2028 EPS estimates by 11% and 12% respectively.
The downgrade is attributed to several challenges facing Nike, including its innovation being overshadowed by a 'pressured classics business' and a tougher demand backdrop in China, a critical market. BofA's Luxury Goods team noted weak sports demand in China, with new products failing to resonate and excess inventory building up. Nike's reduction in partner online sales in China is also expected to lead to promotional pressure through the second quarter. Competition is intense, and the need for newness is higher than ever, leading to risks of sales declines through at least fiscal year 2027.
North American wholesale sales, previously a strong point, are now expected to decline through the rest of fiscal year 2027, as sell-through lags sell-in for both classic styles and new launches. This makes retailers less willing to commit to new products. Nike's dividend payout ratio is also over 100%, leading BofA to reduce its income rating to 8 from 7. Shares of Nike have fallen 47% over the past year, compared to a 12% gain for the S&P 500, due to macroeconomic challenges and tariff hikes. BofA indicated it would become more positive on the stock only after seeing growing product innovation and stabilizing trends in China.
Other analysts have also expressed caution, with five downgrading the stock since the beginning of August. Of the 44 analysts covering Nike, 26 have a 'hold' rating. While Nike's latest quarterly earnings exceeded estimates, revenue declined 1.1% year-over-year, with continued concerns about excess inventory, promotional pressure, and weak wholesale demand. Nike is scheduled to report its fiscal first-quarter results on October 1st, which will provide the next update on its turnaround efforts.
