UBS expects Nike earnings to be a negative catalyst

Investing.com — Nike shares came under slight pressure early on Monday after UBS warned of a potential negative catalyst from its upcoming earnings report.

UBS analysts highlighted deteriorating global sales trends, predicting weak third-quarter guidance and earnings-per-share (EPS) projections below market expectations.

“Our channel checks suggest Nike (NYSE:NKE)’s global sales growth trends deteriorated over the last 3 months,” stated the bank.

UBS estimates Nike’s Q3 implied EPS guidance will range from $0.47 to $0.57, falling short of the market consensus of $0.55-$0.65 and the sell-side forecast of $0.66.

The analysts believe this could weigh heavily on Nike’s current valuation, which trades at a 29x forward price-to-earnings ratio.

UBS stated, “The key is we think Nike sentiment has much more room to fall than many realize.

“Plus, we think Nike’s 2Q report will show its fundamental trends are getting worse and believe few investors like buying stocks when the rate-of-change in fundamentals is deteriorating.”

Despite underperforming the S&P 500 by approximately 1,500 basis points over the last three months, UBS noted a “fear of missing out” (FOMO) among some investors, who expect an imminent recovery in Nike’s fundamentals.

However, the bank cautioned that these optimistic expectations might be premature. UBS cited weaker U.S. direct-to-consumer sales, underperformance in Europe, and disappointing growth trends in China.

Additionally, UBS says Nike’s global Google (NASDAQ:GOOGL) search trends declined by an average of 8% in Q2, while year-over-year promotional activity increased, further signaling challenges.

UBS maintained a Neutral rating on Nike, lowering its price target slightly to $80 from $82, reflecting a valuation consistent with industry peers.

Despite the headwinds, the analysts concluded, “We believe the market’s faith in Nike and new CEO Elliott Hill will keep the stock from falling too much.”