Nike shares continue to trade in a bull market despite the China boycott issue

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jun 6, 2021
Updated: Jun 10, 2021
  • Bank of America assigned a neutral rating on Nike as it identifies near-term earnings risk from sales in China
  • Citigroup also warned that the boycotts of Nike shoes in China represent an issue
  • If the price falls below $120 support, the next target could be around $100

Nike, Inc. (NYSE: NKE) shares continue to trade in a bull market, the sale of the company’s products is going well the company will continue to generate strong growth in the upcoming quarters.

Fundamental analysis: The boycotts of Nike shoes in China are spooking some investors

Nike has a very good position in the market, but the Bank of America assigned a neutral rating on Nike shares as it identifies near-term earnings risk from sales in China. The boycotts of Nike shoes in China are spooking some investors, but the positive thing is that the global economy continues to recover from the pandemic.

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“We are bullish on the long-term prospects for Nike’s accelerated innovation, its distribution strategy to increase digital at the expense of undifferentiated wholesale partners, and opportunities to use data to drive growth. However, we see risk to estimates from softness in China,” said Lorraine Hutchinson, an analyst from Bank of America.

Citigroup also warned that the boycotts of Nike shoes in China represent an issue and expects near-term pressure on sales/margin due to a slowdown in demand in China. Citigroup downgraded Nike to a neutral rating while Melvin Capital Management fund closed its position in Nike last month.

Despite this, the company’s management expects to easily outlive the China boycott issue and remain very optimistic about the company’s outlook. Research firm Stifel does not see a long-term impact on Nike from the boycott and has a buy rating on Nike with a price target of $168.

The current dividend yield stands around 0.8%, and it is important to mention that the board of directors declared a $0.275/quarterly share dividend last month (in line with the previous).

Nike will continue to have revenue growth and margin expansion in the upcoming years, but with a market capitalization of $211 billion, we can notice that this stock is not undervalued. Nike trades at more than forty times 2020 EBITDA, the book value per share is less than $8, and the current risk/reward ratio is not good enough for “value” investors.

Technical analysis: Nike shares have found strong support above $120

Nike shares have found strong support above $120, but probably it is not the right moment for buying shares of this company.

Data source: tradingview.com

If the price falls below $120 support, it would be a firm “sell” signal, and the next target could be around $100. On the other side, if the price jumps above $140 resistance, it would be a signal to trade Nike shares, and the next target could be around $145 or even $150.

Summary

Nike shares continue to trade in a bull market, but the Bank of America assigned a neutral rating on Nike as it identifies near-term earnings risk from sales in China. Probably it is not the right moment to buy shares of this company, and if the price falls below $120 support,  the next target could be around $100.

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