On Friday, the CFRA made adjustments to its ratings Nike Inc (NYSE:), moving shares of the athletic apparel and footwear giant from Sell to Hold. The firm also raised its price target on the stock to $95.00, up from its previous price target of $91.00.
The new price target is based on CFRA’s earnings per share (EPS) estimate of 25.3 times. This valuation is lower than Nike’s average two-year forward price/earnings (P/E) ratio of 29.4 times.
The increase follows Nike’s recent earnings report, which showed normalized earnings per share for the third quarter of $0.98, compared to $0.79 for the same period last year, beating the consensus estimate by $0.23. Revenue for the quarter was $12.43 billion, slightly above the $12.39 billion estimate and $130 million above the consensus estimate.
Nike performed differently across regions, with revenue up 6% in China and down 4% in the Europe, Middle East and Africa (EMEA) region. In North America, Asia Pacific and Latin America (APLA), growth was 3% and 4%, respectively.
The company’s gross margin also improved for the quarter, rising 150 basis points to 44.8%, driven by lower transportation and logistics costs and more effective promotional activities. Marketing expenses, known as demand generation expenses, increased 10% to $1 billion in the quarter.
Moreover, inventory levels showed a positive trend, declining 13% year-on-year to $7.7 billion, which CFRA views as a good sign. Despite the rating upgrade and the positive aspects of the latest earnings report, CFRA remains cautious on Nike shares, expressing uncertainty about where the company’s next phase of growth will come from.
However, the analyst believes Nike is now fairly valued, prompting it to revise its rating and target price for the stock.
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