Nike (NYSE:NKE) stock is moving from bad to worse as headwinds rise and its turnaround efforts take longer than expected. It slumped to $35.5 on Friday, its lowest level since 2014 and 78% below its all-time high.
On Holding Competition, Rising Bond Yields, and S&P 500 Removal
Nike stock plunged on Friday after On Holding (NYSE:ONON), an upcoming brand in the industry, signed Kylian Mbappe, one of the most popular footballers in the world. This signing means that the company is getting serious about competing with Nike, Adidas, and other brands, including Under Armour (NYSE:UA).
The stock has been in a freefall as investors worry that its turnaround efforts, under Elliot Hill, is taking longer than expected. Its most recent earnings report showed that its fourth-quarter revenue dropped by 1% YoY to $11 billion on a reported basis and 4% on a currency-neutral basis.
For the year, its revenue was $46.4 billion, flat from a year earlier. Most of its weakness came from its Chinese business, where local brands like ANTA are gaining share. Benzinga data shows that analysts expect annual revenue in the current fiscal year will be $45 billion.
Nike’s management has put in place a strategy to turn around the company. This includes an emphasis on sports, improving its relationship with wholesalers, and improving its marketing strategy. This approach, however, has failed to generate strong revenue growth.
The ongoing Nike stock crash has had some major implications. For one, it will exit the S&P 500 Index, where it has remained in the last 18 years. At the same time, its bond yields have continued rising, with its 2030 trading at 5.172% and its 2040 hitting 5.91%.
Soaring bond yields is a sign that the company will need to pay more money to its creditors. This is happening months after S&P Global lowered its credit rating one notch to A+ from AA-. Moody’s downgraded it from A1 to A2. Nike still maintains good investment-grade ratings.
Analysts Remain Bearish on Nike Stock
Top analysts tracking the company have a bearish outlook for the company. Jay Sole, a UBS analyst, slashed his price target from $48 to $42, while Telsey Advisory Group cut it from $47 to $44.
Other top analysts, including from Baird, Citigroup, JP Morgan, Morgan Stanley, and BMO Capital Markets have also downgraded their outlook for the stock. The average estimate among analysts is $48, still higher than the current $35.
Nike Has Become Oversold
The weekly chart shows that the stock has been in a strong sell-off in the past few years. Now, however, it has slowly become oversold, with the Relative Strength Index (RSI) moving to 28.70. The RSI is not yet extremely oversold, and it may attempt to retest 26.75, its lowest level in April.
Therefore, the stock may continue falling as its headwinds rise. If this happens, it may drop to $3o, before starting a recovery.
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