Nike Rose 10%+ on CEO’s Departure Plan. What Might Happen Next?

27 sept.

Nike NKE has had quite the rough go of it since peaking in late 2021, but gained some 10% in recent days after embattled CEO John Donahoe "decided" to retire -- sending a sigh of relief up and down Wall Street. What do fundamental and technical analysis say could happen next for the shoe giant’s stock?

Donahoe had been under fire from investors for some time amid the stock’s problems, and Nike tapped retired NKE executive Elliot Hill to take over the outgoing chief’s jobs as president, CEO and board member. Hill previously held senior Nike management positions in North America and Europe before retiring in 2020.

NKE shares immediately popped 8% in after-hours trading when the news of Donahoe’s replacement broke after the bell last Thursday (Sept. 19). Shares have moved up and down since then, but were trading at $89.29 as of Thursday afternoon, up 10.3% from the $80.98 that Nike closed at just prior to the Donahoe news. Of course, that’s still a far cry from the $174.38 that the stock peaked at intraday in August 2021.

Nike’s Fundamental Analysis

NKE plans to release its fiscal Q1 earnings on Oct. 1 after the bell, and the Street is looking for $0.52 of GAAP earnings per share and $11.64 billion of revenue. That would compare with $0.94 of GAAP EPS on $12.9 billion of revenues in the same period last year.

Investors will take a close look at Nike’s latest performance both home and abroad, particularly in China. Of the 16 sell-side analysts that I’ve seen who cover Nike, all of them have cut their earnings estimates since the current quarter began.

JP Morgan placed Nike on its “Negative Catalyst Watch” last Friday, with its well-known analyst Matthew Boss lowering his earnings forecast for the upcoming release to $0.48 per share from a previous $0.52. Boss also cut Nike’s target price to $80 from an earlier $83. As recently as this spring, Boss had a $122 target price on the stock, which he’s rated as “Neutral” since June.

That said, Boss has only a two-star ranking on TipRanks out of a possible five stars. Telsey Advisory’s Joe Feldman -- who gets five out of five stars on TipRanks -- recently reiterated his “Buy” rating on NKE, with a $100 price target.

Despite Nike’s problems over recent years, the company’s operating and free cash flows appear to remain strong, as does its balance sheet.

So, Hill looks like he’s not exactly taking over a broken company, just a damaged business. There can be a big difference between the two.

Nike’s Technical Analysis

Now let’s look at the company’s technical picture, beginning with Nike’s one-year chart:

Readers will see that from July into August, the stock developed a smallish “triple-bottom” pattern, denoted with the zig-zagging purple line in the chart above. That could be taken as a bullish signal, or at least as a basing period of consolidation.

The stock then rose throughout August and into September with gains in the broader market until gapping higher last week on the CEO shake-up news.

We can also see that Nike has already retaken its 50-day Simple Moving Average (the blue line in the chart above) and the 23.6% Fibonacci retracement level of its December-through-July sell-off (as denoted by the second-from-lowest black line).

In fact, Nike is now nearing the more common 38.2% Fibonacci retracement level (the third-from-the-bottom black line). That would put the stock at $90.85.

If NKE gets there, it would next face an unfilled June gap at $93.15, followed by the all-important 200-Day Simple Moving Average (the red line above) at $92.93.

In other words, Nike could soon be held up by whole lot of resistance … or accomplish a great deal technically in a short timeframe by breaking through the above levels.

Readers will also see that Nike's Relative Strength Index (the gray line at the top of the chart above) is now at 72.79 -- which appears to be somewhat overbought, but not necessarily a “rally killer.”

Meanwhile, the stock’s daily Moving Average Convergence Divergence -- or “MACD,” denoted by the black and gold lines and blue bars at the chart’s bottom -- is looking considerably bullish, with all three of its components above zero.

Importantly, Nike’s 12-Day Exponential Moving Average (or “EMA,” the black line above) is running above the 26-Day EMA (the gold line), while the Nine-Day histogram’s EMA (the blue bars) remains positive. All of those conditions are historically bullish when they appear in conjunction with one another.

Now let’s zoom in and look at Nike’s chart for the past roughly six months:

You can see that a moderately shallow cup-with-handle pattern (sometimes referred to as a “saucer-with-handle” pattern) formed around July, as denoted by the light-blue shading above. This pattern -- which is historically a bullish set-up -- has an $85.50 pivot point.

When discerning technical patterns, we look for such pivot points. Historically, they’re spots where a stock’s upward move might accelerate on momentum -- or if unsuccessful, could see the stock reverse course.

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