Analysts revise Nike price targets after major CEO change

Shares of Nike rose sharply in early trading on Friday as analysts and investors reacted to the sportswear giant’s decision to replace CEO John Donahoe.

Nike (NKE) which lost about $45 billion in market value this year, is currently trading at the same level as before the Covid pandemic in 2020 and is one of the weakest performers over the past five years within the Dow Jones Industrial Average.

The company is facing both a decline in consumer spending in China, a key growth market, and fierce competition from European rival Adidas. (ADDYY) and missteps related to the focus on direct-to-consumer sales rather than traditional retailers and wholesalers.

The group launched a $2 billion cost-cutting plan last year, aimed at boosting underlying profit margins and reviving its ailing retail sales. But it failed to capitalize on a summer of high-profile sporting events, including the Paris Olympics and the 2024 European Football Championship.

Nike is forecasting a double-digit decline in total revenue for the current fiscal year, which began in June, while Wall Street expects a 1% gain. The company calls this a “transition year for our business.”

Billionaire activist investor Bill Ackman announced last month that he was taking a 0.2% stake in Nike, in what many saw as a way to oust CEO John Donahoe.

The group received some support for its turnaround last month, when billionaire investor Bill Ackman’s hedge fund Pershing Square Capital Management disclosed a stake of about 3 million shares. But many analysts saw the activist’s interest as leverage to oust Donahoe as CEO.

Nike’s ‘next phase of growth’

On Thursday evening, Nike announced that Donahoe would step down next month, with former Nike executive and 30-year company veteran Elliott Hill set to succeed him on October 15.

“I am delighted to welcome Elliott back to Nike,” said Group Chairman Mark Parker.

“Given our needs for the future, the company’s past performance and after a careful succession process, the board concluded it was clear that Elliott’s global expertise, leadership style and deep understanding of our industry and partners, combined with his passion for sport, our brands, products, consumers, athletes and employees, make him the right person to lead Nike’s next phase of growth,” he added.

Related: Nike Stock Soars After New CEO Is Named

Wells Fargo analyst Kate Fitzsimons raised her price target on the group by $9 to $95 per share after last night’s update. She said Hill’s return would be “a major catalyst that the bulls have been waiting for and should provide a new story for the company.”

Baird analyst Jonathan Komp, who raised his price target by $10 to $110 per share, said Hill’s appointment would likely have a bigger impact on Nike’s long-term earnings outlook and the stock’s prospects for the next six to 12 months.

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Hill’s tough battle

Deutsche Bank analyst Krisztina Katai said Hill’s return as CEO at Nike “increases our confidence in Nike’s ability to return to sustained growth.”

“This eagerly anticipated leadership change will likely result in a renewed focus on product innovation, marketing and rebuilding wholesale partnerships, areas that have been challenged under previous leadership,” Katai said.

She has a buy rating with a $92 price target on Nike shares ahead of its Investor Day presentation on Nov. 19.

Related: Analysts Revise Nike Price Targets After Earnings

“Hill’s strong internal and retail partner relationships should provide an immediate morale boost,” she added. “While Nike’s fundamentals remain weak, we believe they will be largely overlooked in the near term.”

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Ashley Owens, an analyst at KeyBanc Capital Markets who has a sector weight (effectively neutral) rating on the stock, said Hill’s “longtime connection to the company and expertise in marketing are encouraging as Nike explores how to revitalize its brand story.”

“We believe the timing of a leadership change was relatively within expectations and note that Nike is moving quickly in its broader restructuring initiative,” she added.

Nike shares rose 6.9% in premarket trading, reaching an opening bell price of $86.53 per share.

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