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Nike Has Positives But Wells Fargo's Neutral on Current Valuation

Wells Fargo resumed coverage of Nike with an Equal Weight rating and $175 price target.
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Analysts at Wells Fargo resumed coverage of Nike  (NKE) - Get NIKE, Inc. Class B Report with an equal weight rating and $175 price target, as the firm says it is awaiting a more attractive entry point for the stock. 

Nike shares have bounced back more than 13% from their September lows, and the stock is currently trading at a 45% premium to pre-Covid-19 averages. 

"We're intrigued byNKE shares, as we see that the negative supply chain data points are largely behind us, with Vietnam factory shutdowns recovering into early CY22 and elongated transit times," Wells Fargo analyst Kate Fitzsimons said. 

The firm also sees the brand as being poised for a likely acceleration into fiscal 2023, lapping the previous fiscal year's supply chain and Covid disruptions.

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All of Nike's forward growth comes from its direct-to-consumer product. Regionally, China is also the companies best shot for growth  over the next four years.

But Wells Fargo acknowledges that China is a dicey proposition as the country could make an even bigger move towards nationality than it already has recently. 

The biggest reason for the firm's neutral rating is that Nike currently trades at 36x forward earnings and that the good news for the stock is already priced-in.

While Covid is still a risk, and plays into the firm's downside scenario, the upside is that Wells may be underestimating Nike's ability to weather the Covid storm.

Nike shares were little moved following the release.