U.S. Markets closed

UBS upgrades Nike to Buy on new business model

UBS upgraded sportswear giant Nike (NKE) from Neutral to Buy and raised its price target to $136 from $103. UBS said that changes in the swoosh brand’s business model will drive better-than-expected growth.

UBS pointed to Nike’s new “triple double strategy,” which aims to double its speed to market, direct connections with consumers, and pacing of new platforms.

Digital, digital, digital 

It is no secret that Nike has expanded its game when it comes to its direct-to-consumer model, which it refers to as its “consumer direct offense,” and the moves have paid off. The brand saw its digital sales grow by 38% in the second quarter of the fiscal year.

UBS predicts that Nike will generate surprising gross margin gains by reducing markdowns. 

“UBS Evidence Lab data shows 44% of Nike SKUs posted online via its own US channel were on sale in CY19 at an average discount of 22%. This compares to 61% of items on sale in CY17. Nike is making strong progress as a result of investment in shorter lead times and RFID. Importantly, the gains from these investments is likely only beginning.”

UBS’s EPS view for Nike is 4% above consensus estimates for FY21. 

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

Read more:

Follow Yahoo Finance on Twitter, Facebook, Instagram, FlipboardLinkedIn, and reddit.