Nike (NKE - Free Report) stock received two analyst downgrades that caused shares of the sportswear powerhouse to dip on Tuesday, and investors might also be worried after a recent report showed that Adidas (ADDYY - Free Report) surpassed Jordan as the second most popular sneaker brand in the U.S.
Susquehanna Financial Group analyst Sam Poser downgraded Nike on Tuesday from “positive” to “neutral.” Poser also updated his Nike price target to $54 a share from $64 a share. Nike closed at $53.50 per share on Monday.
On top of the Susquehanna downgrade, Jefferies analyst Randal Konik and his team lowered Nike’s price target for the second time in the last 30 days. Konik cut his Nike price target from $60 per share to $49 per share and reiterated his “hold” rating.
The title of Jefferies’ note to clients is very telling as well: “DATA Shows Nike Losing to Adidas at Home & Away.” The note pointed to the fact that Nike has started to lose market share to Adidas in the running shoe space.
According to Konik, Nike has only 35 shoes in the top 60 sellers in the U.S. this year. Last year, the Oregon-based company boasted 52.
But what might scare Nike investors further is that its competition is coming from one key competitor: Adidas. The German company had two shoes in the top 60 a year ago. This year, the Adidas earned 24 spots.
Nike has also started to discount its shoes more regularly than its European counterpart. The poor performance of Foot Locker (FL - Free Report) and Finish Line were also cited as reasons for concern.
According to the note, Nike’s best upside scenario is that it “regains recent share losses in running and protects bball category dominance as competitive pressures lessen.”
On the downside, “Adidas penetration in North America accelerates faster than anticipated, driving incremental NKE share losses… Pricing power loss more severe than expected, compressing gross margins.”
Shares of Nike dropped 1.9% premarket after both notes were published. The sportswear giant’s stock now rests around 0.60% lower than yesterday’s close and sits $7 below its 52-week high at roughly $51.20 per share.
Aside from the analyst notes, Nike took another massive blow after market research firm NPD Group reported that Adidas passed the Jordan brand as the second-most popular sneaker in the U.S. "I've never seen a brand in the sneaker industry grow this fast," NPD analyst Matt Powell said.
Through the first eight months of the year, Adidas claimed 11.3% of the U.S. shoe market share by dollars, up from a 6.6% share in the year-ago period. Nike’s Jordan brand was nearly unchanged and hovers at 9.5%. Nike brand’s market share fell 2% but still dominates overall, claiming 37% of the market.
In 2015, Adidas only claimed 4% of this market. The fact that Adidas eroded some of Nike and Jordan’s cultural clout that quickly might make some investors very nervous. And rightfully so, because fashion and what’s “cool” rarely lasts forever.
Nike is currently a Zacks Rank #3 (Hold) but scored a “D” grade for Value and an “F” for Momentum in our Zacks Style Scores system. Adidas stock boasts a Zacks Rank #1 (Strong Buy) at the moment, but its shares dropped by around 1% on Tuesday morning.
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