Nike Stock has been Downgraded by Morgan Stanley

Our boy Jim Swanson breaks down why Morgan Stanley has downgraded Nike’s stock. In a nutshell it’s due to slow growth and competition, namely adidas who has seen a 26% increase in U.S. footwear and Under Armour who has seen 5.33% growth in basketball footwear.

Nike is still the reigning champ in the marketplace, however, this downgrade does show a kink in the armor.

Here’s the detailed breakdown.

With the weakening in the U.S. athletic apparel category and rising competition, Morgan Stanley’s Jay Sole expects Nike Inc NKE 2.88% to see a slowdown in its U.S. sales, a risk that the stock does not fully reflect at present.

Sole downgraded the rating on the company to Equal-weight, while lowering the price target from $69 to $60.

Slowing Growth

SportScan data suggests sales growth at Nike’s U.S. core channel apparel segment slowed by 1 percent during the current quarter.

“Many new entrants are fragmenting the market and Nike is lapping five years of double-digit growth. Retail bankruptcies and consumers’ shift to online shopping has created heavy excess inventory, which is causing LSD ASP declines,” Sole explained.

Impact Of Competition

Sole noted that strategic changes implemented by Adidas has been helping the company regain brand momentum in the U.S., with Adidas witnessing sales growth acceleration in U.S. footwear of 26 percent year-on-year in April-May.

On the other hand, Under Armour Inc UA 5.33%‘s Steph Curry basketball footwear has captures share worth 800bps from Nike, year-to-date.

“We continue to believe Nike will deliver strong international results and can quickly cut SG&A, if necessary. These limit downside risk. At the same time, heavy inventory levels and competitive pressures limit upside,” the analyst said.

Estimates Lowered

Sole believes Nike’s U.S. business, which accounts for 45 percent of its total business is facing headwinds. The U.S. sales growth estimate has therefore been lowered from 7 percent to 6 percent.

The FY17 EPS estimate has been lowered by 4 percent to $2.38.