Wall Street analysts are more confident in Nike's outlook after strong earnings, improving inventory

Published Wed, Dec 21 20226:48 AM ESTUpdated Wed, Dec 21 20227:51 AM EST

Wall Street analysts think Nike is moving in the right direction after the company reported strong earnings, as well as signs of improving inventory. Shares of Nike jumped more than 12% in Tuesday premarket trading after the sports apparel company topped analyst expectations in its latest quarterly earnings . Notably, the firm said it has made progress on clearing its inventory backlog. UBS analyst Jay Sole called Nike his top pick for 2023, saying that the company's growth potential is underestimated. He reiterated a buy rating on the stock. "Nike's investments in product innovation, supply chain speed, and digital are unlocking what is likely a multi-year period of above average growth. Plus, we believe Nike has the brand strength, strategy, skills, and resources to outperform peers through a recession," Sole wrote. "We think Nike has more EPS growth potential than either the sell-side or market realizes," Sole added. Meanwhile, Morgan Stanley analyst Alex Straton raised her price target to $138, from $127, following the earnings beat. The new price target implies shares could jump more than 33% from Tuesday's closing price. Straton has an overweight rating on the stock. "Across-the-board beat & FY raise surprise to the upside. NA & EMEA the standout of 2Q to us, as they reflect early signs NKE's DTC transformation is finally yielding margin uplift," Straton wrote in a Wednesday note. "Inventory & Greater China still overhangs, but moving in the right direction. We leave the print incrementally positive." Credit Suisse analyst Michael Binetti also raised his price target on the stock to $132 from $122, saying that he is "pivoting to offense" with Nike heading into 2023. The analyst noted that Nike's two "most important" businesses in North America and China have likely bottomed, and can rebound from here. Binetti has an outperform rating on the stock. "We see Nike as a must-own discretionary stock heading into CY23 for high-quality exposure to what should be the most powerful global consumer story over the next year—China reopening," Binetti wrote in a Wednesday note. Other analysts had a more balanced view on the stock in spite of the earnings beat. Bank of America analyst Lorraine Hutchinson reiterated a neutral rating on the stock, but raised her price target to $120, up from $112. The new price target is about 16% above where shares closed Tuesday. She said the sports apparel company has work left to do to clear inventory. "Nike's strong revenue surprised to the upside but the company didn't move through as much inventory as we expected. It will use the rest of the year to better align inventory levels with demand through continued clearance and lower receipts," Hutchinson wrote. "We were encouraged by the 2Q beat and improved sales outlook for the year, but still see a balanced risk/reward given the softer 3Q guidance (mostly due to SG & A timing), lingering inventory clearance, and China uncertainty," Hutchinson added. Citi analyst Paul Lejuez has a neutral rating on Nike, saying shares could trade in a narrow range from here. "While F23 guidance seems conservative, F24 will be burdened to grow sales in NAM vs tough comparisons. And with shares trading at an F24E EV/EBITDA multiple of ~23x.5, we believe the risk/reward is balanced," he wrote in a Wednesday note. —CNBC's Michael Bloom contributed to this report.