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Mar 21, 2022

Nike heads for biggest quarterly drop since 2008


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In an industry pressured by soaring inflation, Nike Inc. is suffering more than most as its exposure to the fallout from the war in Ukraine and supply-chain issues put its shares on track for their worst quarter since 2008.

The stock is down 22 per cent this year, double the pace of the 11 per cent decline in the S&P 500 consumer discretionary index, as decades-high inflation hurts shoppers’ sentiment and wallets. The company will report fiscal third-quarter earnings after markets close on Monday.

Production shortfalls and transport delays in particular make for a “tough-to-predict” report, according to Morgan Stanley analyst Kimberly Greenberger. Even if the company delivers a beat and raise quarter, uncertainty around the drivers of underperformance in China, potential impacts from Russia’s invasion of Ukraine and inventory levels could keep the stock range bound. 

“It’s unlikely 3Q results resolve these lingering debates, delaying any material valuation re-rating to the 4Q earnings report (in June) or beyond,” Greenberger wrote in a note last week. Nike shares fell 0.8 per cent on Monday.

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BofA Securities analyst Lorraine Hutchinson recently lowered her earnings per share estimates for fiscal 2022 and 2023, citing exposure to Russia and eastern Europe as well as Covid-related volatility in China.

Bloomberg Intelligence: Russia Risk May Threaten Nike’s US$11 Billion of Sales in EMEA

Still, analysts remain largely positive on Nike, which has 28 buy ratings, 7 holds and 1 sell, according to data compiled by Bloomberg. Even though several analysts have trimmed their price targets ahead of earnings, the average analyst target still implies return potential of 29 per cent for the next 12 months.

“We see a compelling buying opportunity for one of our favorite long-term growth stories,” Truist Securities analyst Beth Reed wrote in a note last week.