RBC Cuts Nike Rating, Cites Sluggish Turnaround; Shares Slip

RBC Capital Markets recently downgraded NKE to Sector Perform from Outperform, slicing its price target from $70 down to $50. The big reason? Nike's turnaround under CEO Elliott Hill isn't moving fast enough, according to RBC analyst Piral Dadhania.

The company's stock took a hit, falling roughly 1.2% in premarket trading shortly after the report. The investment bank trimmed its earnings per share estimates by 9% for fiscal 2027 and 13% for fiscal 2028, sitting just about 2% below consensus on both years.

Dadhania pointed out that while the recovery efforts at Nike are making some headway, they're happening at a slower and narrower pace than the market had hoped. Events like the World Cup and the ongoing inventory adjustments aren't expected to trigger a notable revenue boost for the rest of 2026.

Since Elliott Hill took the reins in October 2024, Nike shares have dropped about 50%. In contrast, sportswear rival ADSGN has soared roughly 70% over a similar timeframe after its own CEO shuffle. The consensus expectations for Nike's 12-month forward EPS have been cut nearly 40% since Hill began leading the company.

The longer-term view sees Nike's revenue expanding at about 3% annually over the next three years, which is half the sector average and notably behind adidas's 8% expected growth. The brand has reportedly lost over 4 share points in sports footwear market since 2023, with competitors like On Running, New Balance, Hoka, and Asics eating into its slice.

In the women's apparel segment, Nike also faces stiff competition from brands such as Lululemon, Alo Yoga, and Vuori, which have been carving out considerably strong premium positions in the market.

Another red flag for RBC is the growing discrepancy between wholesale sell-in and direct-to-consumer (DTC) sell-out, especially in North America. Dadhania emphasized that a full-price DTC rebound will be pivotal and anticipates some improvement as fiscal 2027 progresses with easier comp comparisons.

Adding complication, the recent acquisition of Foot Locker by DKS means that roughly 11% of Nike's revenues and a fifth of its wholesale business are affected by tightened buying discipline, with estimates suggesting a 30% cut in underperforming product styles.

RBC's $50 price target is based on a discounted cash flow model with an 8.5% weighted average cost of capital and a 2.5% terminal growth rate, implying around 15% upside from current levels. However, if Nike's valuation normalizes to the sector multiple, fair value could dip into the $34 to $38 range. Investors will be keeping an eye on Nike's upcoming Capital Markets Day in Fall 2026 for more clarity on strategic targets.