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  1. How a new shoe could provide a billion-dollar turnaround to Nike

How a new shoe could provide a billion-dollar turnaround to Nike

Nike’s new sneaker shoes range Air VaporMax will garner $1 billion in sales, helping lift the entire company’s revenue, Morgan Stanley's analyst Jay Sole wrote in a research note.

By: | Published: July 23, 2017 10:00 AM
Nike’s new sneaker shoes range could help lift the company’s North America sales by 5% in the next quarter, a Morgan Stanley analyst says. (Image: Reuters)

Seldom has a new product launch had the kind of effect on the company’s share price as it has had on Nike’s stock. The sportswear maker’s latest offering has got rave reviews from at least one expert — not a fashion critic, but an equity market research analyst. Jay Sole of Morgan Stanley wrote in a recent note that Nike’s new sneaker shoes range Air VaporMax will garner $1 billion in sales, helping lift the entire company’s revenue, CNBC.com reported this week.

“We believe new Nike products like Air VaporMax, fashion shifts, and Nike’s… speed-to-market capabilities (which are improving more rapidly than was expected) reverse headwinds experienced over the last 18 months,” Jay Sole wrote in the Morgan Stanley note. Nike’s shares rose over 2% in trade late this week after the brokerage firm raised its rating on the company to ‘overweight’ from ‘equal-weight’ citing that its sales will rise in the coming months due to the hot new sneakers on offer. Morgan Stanley also raised the price target on Nike’s shares by an impressive 21%, to $68 from $56 earlier.

Nike has mostly disappointed shareholders this year, with its shares vastly underperforming the benchmark markets over the last 12 months. “Competition has been a problem for Nike over the last 12 to 18 months,” Jay Sole of Morgan Stanley said to CNBC in an interview. “Going forward, Nike is going to do a little better job competing and bringing more innovation to market. That’s going to help them stop the share loss they had,” Jay Sole added.

Jay Sole said he estimates Nike’s North American year-over-year sales growth will rise to 5% next quarter from an estimated contraction of 2% in the current quarter. “As Nike proves it can deliver winning product innovations and navigate the online transition, we think market fears subside and the stock’s P/E [price to earnings multiple] expands,” he wrote in the note. “We think the window to buy Nike at the bottom of a cycle is closing. Nike EPS and North America sales growth rates are likely troughing,” he added in the note.

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