Bank of America Securities reiterates Nike "Buy" rating, expects continued pressure on China business

Bank of America Securities published a research report, reiterating its "Buy" rating on Nike (NKE.US), noting that Nike's second-quarter performance showed positive trends in the North American market and running category, but was partially offset by weak performance in China. The gross margin guidance did not meet the bank's expectations for improvement. Although there is disappointment regarding the lengthy transformation of the China business, it believes that other markets have shown signs of improvement. Consequently, it has lowered its earnings per share forecasts for fiscal years 2026 and 2027 to $1.39 and $2.40, respectively, and reduced the target price from $84 to $73, which corresponds to a projected price-to-earnings ratio of about 30 times for fiscal year 2027.

Nike guided that third-quarter revenue will see a low single-digit decline, and Bank of America Securities expects Nike's North American business to grow by 2%. It anticipates that the company's focus in North America is shifting back to wholesale, with wholesale orders for spring and summer gradually improving. The bank estimates that the Chinese market will account for only 13% of sales in fiscal year 2026, significantly down from its peak, and believes that the China business will continue to face sales and margin pressure for the remainder of fiscal year 2026