The Ratings Game: Nike could come out of the coronavirus in a position of strength, UBS says

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Nike Inc. shoppers who couldn’t get to stores that were shuttered by the coronavirus pandemic flocked to e-commerce channels during the fiscal third quarter.

In an earnings call Tuesday, Chief Executive John Donahoe said digital accounted for about 20% of the company’s overall business, with digital sales rising 36% on a currency-neutral basis during the fiscal third quarter.

Nike NKE, +9.24%   reported revenue of $10.1 billion in the quarter.

In China, while people were isolated at home, Nike said weekly active users on its activity apps were up 80% by the end of the quarter versus the beginning. Digital business in China grew 30%. Nearly 80% of the stores in China are back in operation.

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“In addition to Greater China, we’ve applied that playbook in Japan and South Korea over the past two months, and we’re seeing early momentum in those markets as well,” Donahoe said on the call, according to a FactSet transcript. “And with COVID-19 now spreading across Europe and the U.S., we are applying the same playbook.”

With digital sales soaring, UBS analysts said e-commerce could offset the losses from global store closures.

“It also means the probability of COVID-19 causing a liquidity issue for Nike is lower than we previously thought,” analysts said.

In a previous note, UBS said Nike has $5.5 billion in liquidity, accounting for just 14% of calendar 2019 sales. In comparison, Ralph Lauren Corp. RL, +1.63%   has $2.4 billion, but that accounted for 38% of last year’s sales.

“Lastly, it suggests Nike will be in an even stronger competitive position when the COVID-19 situation ends versus our prior view,” UBS said.

Also: Coronavirus pandemic raises concerns that some retailers will run out of cash

UBS rates Nike stock buy with a $114 price target, down from $123.

Baird analysts say China is well on its way to recovery, with its fiscal fourth quarter seen as flat, showing “Nike’s superior positioning amid a challenging environment.”

Baird rates Nike shares neutral with an $85 price target, down from $103.

“Nike is operating from a position of strength with respect to brand (demand remains strong), product (strong pipeline/healthy sell-through pre-coronavirus), digital (driving greater separation), and people/talent (Nike maintaining pay),” Baird analysts, led by Jonathan Komp, wrote.

Raymond James analysts say coronavirus is encouraging a shift in consumers to more digital activity, and Nike, which has invested in its digital capabilities, is prepared for the change.

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“We agree with Nike that COVID-19 is accelerating the change in the consumer to shop, interact and train more digitally,” analysts said. “Still, Nike’s new message ‘Play Inside, Play for the World,’ could help drive a new health craze in the interim.”

Raymond James rates Nike stock outperform with a $100 price target, down from $110.

Nike stock ended Wednesday up 9.2%, but shares have slipped 4% over the past year. The Dow Jones Industrial Average DJIA, +2.39%   has tumbled 17% for that period.

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