Amid CEO Shakeup and Stock Slump, Wall Street Is Still Bullish on Nike
Nike’s board unexpectedly announced yesterday (Sept. 19) that CEO John Donahoe would retire next month after four years at the helm of the world’s largest athletic wear company. The announcement came amid slowing sales and a year of stock decline. In a bid to turn around the business, Nike will replace Donahoe with the company veteran Elliott Hill, who retired in 2020 after a 32-year tenure, next month. The announcement sent Nike shares to jump 10 percent yesterday.
Nike’s stock price is down nearly half from its 2021 high. Legacy athletic wear brands overall have seen their stocks fall this year: Lululemon Athletica is down 47 percent; Puma is down 27.8 percent; and Under Armour is down 8.9 percent. Investment banks, including Jefferies, attribute the decline to rising competition from new entrants like Alo, Allbirds, Hoka and On. But Wall Street remains cautiously optimistic, with a consensus rating of “moderate-buy” of Nike stock and some analysts predicting an up to 39 percent upside potential.
The hedge fund billionaire Bill Ackman has bet big on the iconic American brand. His firm, Pershing Square, acquired three million shares, or 0.2 percent, of Nike this spring. His stake is currently worth about $250 million.
Despite its recent struggles, Nike retains a wide economic moat thanks to its global brand recognition and strong partnerships with athletes. It was the official sponsor of Team USA during the 2024 Paris Olympics, which helped boost sales compared to competitors. Additionally, Donahoe’s push to streamline operations by focusing on direct-to-consumer sales, if continued by Hill, could bolster profit margins in the long term. Analysts from Morningstar view Nike’s current valuation as attractive for long-term investors, especially given its track record of being able to rebound from downturns.
Hill started at Nike in 1988 as an intern. Before retiring, he oversaw Nike’s commercial and marketing operations and the Jordan brand. His return to the company as CEO resumes Nike’s history of promoting internal talent to the top job. Donahoe, formerly CEO of eBay and ServiceNow, is the second outsider CEO in the company’s 48-year history.
Nike remains the largest athletic wear company in the world, with a market cap ($129 billion) almost three times that of its runner-up, Adidas. However, with projections of revenue decline, Nike’s stock price will likely get worse before it gets better. But some fundamentals show the company heading in the right direction. In the most recent quarter, the company reported a 46 percent year-over-year jump in net income to $1.5 billion. Its next quarterly earnings report is set to come out on Oct. 1.