Nike Slides As Jefferies Cuts Rating On Competition Concerns

Shares of Nike (NKE) are slipping after Jefferies analyst Randal Konik downgraded the stock to Hold, citing increasing U.S. competition and its premium valuation. Meanwhile, UBS analyst Michael Binetti also downgraded two athletic goods retailers, namely Finish Line (FINL) and Foot Locker (FL).

MOVING TO THE SIDELINES: In a research note this morning, Jefferies’ Konik downgraded Nike to Hold from Buy and lowered his price target to $60 from $75 saying that while it remains a “top brand in a solid industry,” his mosaic of five data sources suggests growth and margins are at risk ahead. Further, with expectations for less robust fundamentals, Nike’s premium valuation conflicts with intensifying U.S. competition unfolding, he argued. The analyst pointed out that adidas’ (ADDYY) success in reviving its brand appeal in North America has had a clear impact on Nike share as web traffic analysis indicates accelerating site visits for adidas and slippage for Nike. Additionally, Konik said that his store call survey indicates adidas mentions are rising and Nike falling, and adidas mentions increased on the Finish Line and Foot Locker calls. Near-term elevated SG&A spend is likely as Nike will require more marketing to defend its turf from adidas, he contended.

FOOT LOCKER, FINISH LINE RATINGS ALSO CUT: Meanwhile, UBS’ Binetti downgraded Foot Locker to Neutral from Buy and Finish Line to Sell from Neutral, saying second quarter results were worse than expected, making it tougher to support a thesis that athletic retailers will be able to sidestep emerging structural challenges. The analyst told investors that he thinks the brands’ plan to push direct-to-consumer make it much harder to deliver their earnings per share commitments to shareholders, market share loss to Amazon (AMZN) is almost certain, and store closures need to accelerate. Further, Binetti noted that his analysis shows that Finish Line has among the highest geographic overlap with J.C. Penney (JCP) and Sears (SHLD) stores, which he sees as particularly challenged. The analyst lowered his price target for Foot Locker to $37 from $70, and Finish Line to $9 from $14. Foot Locker saw another downgraded this morning, as Baird analyst Jonathan Komp cut his rating to Neutral from Outperform based on lack of visibility, broadening category headwinds, negative operating leverage, oversaturation concerns, and economic headwinds. The analyst also lowered his price target on the shares to $37 from $65.