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Analyst Bullish on Nike Inc. (NKE) and Under Armour Inc. (UA) as the Two Companies Compete

By Howard Kim 

Two leading brands in the athletic retail segment, Nike Inc. (NYSE:NKE) and Under Armour Inc. (NYSE:UA), are competing head-to-head to capture a higher share in the sneaker market and to sign star athletes. Analyst Kate McShane of Citigroup who follows both companies weighed in.

On October 5th, McShane maintained a Buy rating on Nike with a price target of $142. Nike’s upcoming investor day, scheduled on 14th October, will be the first such meeting since 2013. McShane expects the company to focus on its digital and supply chain during its investor day.

McShane expects Nike to update its 5-year revenue targets and announce a guidance of around +11 percent annual revenue growth through FY19. She says, “This would bring in $46 billion in revenues, with digital being an accelerator, brand expansion to new categories, international growth and further growth in the women’s section.”

In terms of the digital strategy, McShane says, “Nike may increase its focus on e-commerce and international growth, versus local retail growth. It may also focus on leveraging customer data from its successful Nike and NTC apps.”

McShane concludes by saying, “We would expect an acceleration in top line guide to DD (vs previous HSD) and meaningful improvement to gross margin guidance given Nike mgt’s recent commentary that they are just starting to see costs of production becoming less of an offset to gross margins, which should drive higher-than-traditional EPS guidance of mid-teens growth.”

The analyst has rated Nike 22 times since 2009, earning a 90% success rate recommending the company with a +22.7% average return per NKE rating.

The analyst’s bullish rating is congruent to the majority of analysts who cover Nike. According to TipRanks, 18 analysts have rated Nike a Buy in the last 3 months while only one has rated it a Hold. The average 12-month price target for Nike is $135.44, marking a 10% potential upside from current levels.

On October 7th, McShane increased her price target for Under Armour to $116 from $114 given the company’s “bullish” investor day last month and maintained a Buy rating on the stock. According to The Fly, She sees the company “as one of the most compelling growth opportunities in apparel/footwear.”

The analyst has rated Under Armour 7 times since 2011, earning a 50% success rate recommending the company with a +15.7% average return per UA rating.

The majority of analysts seem to share McShane’s bullish sentiments on Under Armour. According to the 13 analysts polled by TipRanks in the last 3 months, 9 are bullish on the company while 4 are staying on the sidelines. The average 12-month price target for the company is $112.50, marking a 14% potential upside from current levels.