In This Article:
Investing.com -- Bank of America reiterated its Buy rating on Nike (NYSE:NKE), saying the pullback in the stock already reflects concerns over China and tariffs, and that margin risks remain manageable.
“Nike has underperformed the S&P since tariffs were announced on April 2, dropping 12% vs. the S&P 500’s -5%,” BofA analysts wrote.
However, the firm added that “under the current scenario, we think tariffs are manageable, and weakening demand for U.S. brands in China is priced in.”
While BofA lowered its price target for Nike to $80 from $90 due to multiple compression, it maintained a positive outlook.
“We think continued inventory cleanup actions through 1H26 will allow innovation to scale at a robust pace, leading to a sales inflection,” the note said.
The firm also downplayed tariff concerns, pointing to Nike’s diversified supply chain.
“Nike’s supply chain is diversified, with Vietnam, Indonesia and China accounting for 50%, 27% and 18%, respectively of Nike’s footwear,” analysts noted.
BofA explained that most Chinese production serves the local market, with limited exposure to U.S. tariffs.
They add that if current tariffs remain in place, Nike’s blended rate would be 16.75%, resulting in a 110-basis-point margin impact. “Nike could raise prices globally by a very manageable 2% to fully offset the pressure.”
China remains a key region for Nike despite recent headwinds. “While China comprises only 15% of Nike brand FY26E sales, the region still generates 28% of EBIT,” BofA said.
That compares to 38% of EBIT in fiscal 2021. The firm acknowledged that “China was a significant part of the growth story pre-COVID but is now viewed as more of a risk.”
BofA concluded that China sales would need to fall an additional 25% for earnings to justify the recent 12% stock drop, indicating current levels may already reflect the downside.
Related articles
BofA on Nike: Tariffs manageable, China risk priced in
Lowe’s, Williams-Sonoma raised: KeyBanc sees opportunities for patient investors
UBS upgrades Philip Morris on margin improvement at Zyn and IQOS