Nike Stock Rallies After Bill Ackman Takes a New Stake
Nike is the latest consumer discretionary play to be added to Ackman's Pershing Square Capital equity portfolio. Here's what that means for the blue chip stock.
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Nike (NKE) stock is one of the best-performing Dow Jones stocks Thursday thanks to news Bill Ackman's Pershing Square Capital Management took a new stake in the footwear and apparel retailer.
According to a 13F regulatory filing released Wednesday, Pershing Square bought more than 3 million shares of Nike stock in the second quarter. This works out to a roughly 0.2% ownership stake of the retailer and makes NKE the ninth largest position in the Pershing Square portfolio.
Per Whale Wisdom, Ackman's hedge fund is estimated to have paid an average of $75.37 per share for its Nike stake, which was worth roughly $230 billion at the end of Q2.
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The addition of Nike to the Pershing Square equity portfolio increases its exposure to consumer discretionary stocks. Indeed, the fund's top three positions – Hilton Worldwide Holdings (HLT), Chipotle Mexican Grill (CMG) and Restaurant Brands International (QSR) – fall under this umbrella.
The new Nike stake also marks a return to the stock for Pershing Square Capital Management. In late 2017, the firm invested in Nike and made an estimated $100 million profit, according to Reuters.
Why would Ackman invest in Nike?
"Nike has been lacking any real innovation that reaches consumers," says Brian Mulberry, client portfolio manager at Zacks Investment Management. He adds that even the Jordan brand has struggled recently, while Lululemon Athletica (LULU) and Fabletics have taken the lead in the apparels market.
"Nike is also missing key brand ambassadors that were so critical to growth," he adds. "Tiger Woods, Lebron James, etc. are all aging athletes and have either left or are likely not to renew the large deals from the past. But that leaves them with no real superstar from any sport to help engage with younger consumers in particular."
However, this is likely why Ackman took a stake in Nike, Mulberry says. Not only did he scoop up NKE at an attractive valuation, but it gives him "a chance to make a positive impression on the future direction of the company, which he was able to do successfully seven years ago."
As such, the portfolio manager believes the board of directors and the executive team will "be happy to engage with Ackman rather than having him become a hostile activist."
Is Nike stock a buy, sell or hold?
Ackman scooped up Nike at a discount, considering it has been one of the worst Dow stocks of the year – with only Intel (INTC) and Boeing (BA) suffering bigger losses.
Still, Wall Street remains bullish on the blue chip stock. According to S&P Global Market Intelligence, the average analyst target price for NKE stock is $91.27, representing implied upside of about 12% to current levels. Additionally, the consensus recommendation is Buy.
Speaking for the bulls is Wedbush analyst Tom Nikic, who has an Outperform (the equivalent of Buy) rating and $97 price target on Nike.
Nikic admits that Nike is facing several challenges, as evidenced by the disappointing fiscal fourth-quarter earnings report its released in late June. The company also lowered its full-year sales forecast amid muted wholesale orders and a softer outlook in China.
However, the analyst is hopeful "that with management seemingly more clear-headed about the mistakes they've made, they can lean on NKE's vast resources (bigger budgets than any competitor in terms of research and development, marketing, etc.) to begin the road to recovery in 2025."
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