Nike Catches a Big Downgrade as Competition Eats Away at Revenue

Athletic footwear and apparel maker Nike Inc (NYSE:NKE) this morning received a big downgrade from analysts at Piper Jaffray, who said the headwinds of increased competition won’t dissipate any time soon.

The firm cut its rating on NKE from Overweight to Neutral with a $58.00 price target, suggesting zero upside to the stock’s Wednesday closing price of $57.72.

In a note to clients, analyst Erinn Murphy commented:

“We are downgrading our investment rating on NKE from OW to Neutral following our multi-market visits in Germany, UK & France this past week. While we believe in the brand longterm, the resurgence of adidas has taken a toll on Nike’s growth rate in the region. We are also seeing other competition for the brand in Europe accelerate–from the likes of Puma, New Balance and surprisingly Reebok (Classics). Unlike other brands, markdowns of Nike product were consistent across our wholesale checks. Bottom line, these competitive pressures combined with a more muted innovation pipeline for Nike currently, could weigh on Nike for the next 6-12 month period. In terms of our model, our estimates and PT remain unchanged. We are stepping to the sidelines and expect NKE shares to be in a period of digestion until we see evidence of new platform innovation and earnings acceleration.”

Nike recently and abruptly exited the golf equipment business, ending a two-decade foray into what is now an industry in a steep decline. The company will continue to make golf shoes and apparel, but ceased manufacturing of clubs and balls amid declining market share and sharply lower demand.

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Nike shares fell $1.01 (-1.75%) to $56.71 in premarket trading Thursday. NKE has slipped 7.65% year-to-date, versus a 7.4% rise in the benchmark S&P 500 index during the same period.

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