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Bank of America upgrades Nike to Neutral

Nike got a boost (not to be confused with an ultra boost) from Bank of America Merrill Lynch. BofAML upgraded its rating for Nike (NKE) from Underperform to Neutral and raised its price objective to $98 per share.

BofAML also makes the case that the company could be categorized and valued not as a sportswear company but as a consumer staple due to its growth and reach. "NKE's broadening customer base arguably supports a global consumer staples valuation (instead of a branded apparel & footwear company valuation), in our view," the note said.

While the global slowdown in performance wear sales is a concern for the apparel industry, BofAML expects that Nike’s non-performance “sportswear” growth to offset any industry-wide malaise.

According to BofAML, the decline in Nike’s F20 consensus estimates (down 25%+ from a peak of $3.95 in June 2016) is over. The bank says that this is marked by the F1Q20 EPS upside led by Nike’s non-technical “sportswear” businesses.

BofAML cites accelerated democratization of both and Nike and subsidiary Jordan brand with helping the company offset the overall stagnation that has hampered the performance category overall. “In performance product, we saw very strong momentum in Basketball internationally this quarter,” said Nike President & CEO Mark G. Parker during the company’s Q1 earnings call.

A Nike store selling NBA Los Angeles Lakers sportswear is seen in Beijing, China October 10, 2019. REUTERS/Tingshu Wang

Much of the Jordan brand’s expansion efforts have focused on Greater China. Nike has maintained double-digit growth in China every quarter for more than 5 years. In Q1, the Oregon–headquartered company saw a 27% revenue growth on a currency-neutral basis in the region.

In fiscal ’19, Jordan pulled in over $3 billion in revenue, which represents a record for the brand. Its follow up to that in Q1 was double-digit growth in all geographies.

BofAML also noted strides the swoosh brand has made in the areas of women’s & kids’ apparel. This includes the company’s continued evolution of its plus-size clothing and sports bra lines.

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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