Morningstar has significantly lowered its fair value estimate for Nike (NKE) by 44%, reducing it from $94 to $52.50 per share. This adjustment comes amid intensified competition and internal challenges that have impacted the company over the past three fiscal years. The firm's ongoing restructuring is expected to result in a high-single-digit sales decline in fiscal 2027.
The downgrade includes a reduction in Morningstar's Economic Moat Rating from wide to narrow, reflecting the increased competitive pressures in the sportswear market. Despite these challenges, Nike retains its leadership position and pricing power, supported by strong intangible assets. Morningstar believes the current valuation does not fully account for Nike's recovery prospects, which are backed by marketing and product advantages.
Key financial expectations have been revised downward, with an anticipated 8% sales decline in fiscal 2027, a 5.9% operating margin (down from 6.8%), and earnings per share (EPS) of $1.16 (previously $1.69). Over the next decade, sales growth is now projected at a 3% compound annual rate, down from the previous 5%, aligning with expected market growth. Operating margins are forecasted to recover to nearly 14% as Nike invests in brand innovation, supply chain efficiency, and sports sponsorships.
Morningstar has also lowered its Capital Allocation Rating to Standard from Exemplary, citing weakened investment returns and a halt in share buybacks. However, the firm expects the dividend, with a yield over 4%, to continue.