NIKE, Inc. Class B (NKE.US) financial report outlook: Transformation pains have not yet disappeared, Bank of America still optimistic about 40% upside potential.

Bank of America Securities maintains a buy rating on NIKE, Inc. Class B (NKE.US) in its latest research report, with a target price of $73, representing about a 40% upside from the current price of $52.07. The report, released on March 25, 2026, outlines key points for investors ahead of NIKE, Inc. Class B's third-quarter earnings report for fiscal year 2026, scheduled to be released after market close on March 31 (Tuesday) Eastern Time. It also discusses the opportunities and challenges the company faces during its transformation. The North American market is showing signs of improvement, while the Chinese market continues to face pressures. Bank of America analysts anticipate a 2% year-on-year sales growth in the North American market in the third quarter, benefiting from the brand's continued investment and channel optimization in the region. However, the situation in the Chinese market is less optimistic. Following a 16% sales decline in the second quarter, analysts project a similar performance in the third quarter, indicating a continued double-digit decline in sales in the region. Bank of America notes that the challenges in the Chinese market in the second half of the year are already expected by the market and will not come as a surprise. Of note is the significant decrease in the contribution of the Chinese market to NIKE, Inc. Class B's overall profitability - analysts estimate that the Chinese market will only account for 11% of the pre-tax profit in fiscal year 2026, significantly lower than the pre-pandemic level of 26%. Sales in the Europe, Middle East, and Africa market remained flat in the first half of the year, with political uncertainty from the GEO Group Inc being a key variable affecting performance in that region. From a company perspective, Bank of America expects NIKE, Inc. Class B's total sales to decline by 0.4% in the third quarter, with currency factors contributing approximately 300 basis points positively. Gross margin facing dual pressures Gross margin is a key focus of this research report. Bank of America points out that NIKE, Inc. Class B is experiencing two intertwined factors in the third quarter: the gradual easing of gross margin pressure resulting from inventory-clearing cycles, and the additional cost impact from tariff policies. Specifically, Bank of America predicts a negative impact of 315 basis points on gross margin from tariffs in the third quarter, with the company's relief measures progressing relatively slowly, mainly due to NIKE, Inc. Class B's cautious approach to raising prices during the transformation period. Taking these factors into account, analysts expect the gross margin in the third quarter to decline by 200 basis points year-on-year. However, Bank of America also sees a glimmer of hope - with accelerated progress in tariff relief measures in the fourth quarter, the gross margin is expected to stabilize in that quarter. It is worth noting that products have been imported at a new tax rate of 10% for about two months (previously around 20% before the IEEPA ruling), which may provide upside potential for gross margin in the fourth quarter and the first quarter of fiscal year 2027. World Cup new products act as short-term catalysts In terms of products, NIKE, Inc. Class B is leveraging the popularity of the 2026 World Cup to drive sales. The company has released home and away jerseys for 17 national teams this month, utilizing NIKE, Inc. Class B's latest Aero-FIT high-performance fabric. According to the report, this new material not only has better breathability and cooling functions, but also has airflow circulation more than twice as high as traditional NIKE, Inc. Class B materials, and is the first elite-level high-performance fabric made entirely from textile waste. Bank of America believes that the launch of the World Cup series products will help boost sales performance for NIKE, Inc. Class B in the fourth quarter and the first quarter of fiscal year 2027. Valuation at historical lows, highlighting long-term value From a valuation perspective, the current stock price of NIKE, Inc. Class B already reflects a significant amount of pessimistic expectations. Bank of America's data shows that NIKE, Inc. Class B's forward price-to-earnings ratio is currently around 24.5 times, lower than the 31.0 times in the previous quarter, and lower than the historical average of 30.1 times since 2010. In comparison to the S&P 500 index, NIKE, Inc. Class B's price-to-earnings ratio premium is only 1.26 times, also lower than the historical average. Bank of America's logic behind the $73 target price for NIKE, Inc. Class B is based on a valuation of 30 times the earnings per share of $2.40 for fiscal year 2027, which is essentially in line with the historical average for NIKE, Inc. Class B, reflecting analysts' confidence in the company's earnings and sales turning point. Earnings forecasts and risk factors According to Bank of America's financial model, the earnings per share for NIKE, Inc. Class B for fiscal years 2024 to 2028 are projected to be $3.73, $2.16, $1.39, $2.40, and $3.26, respectively. The earnings per share for fiscal year 2026 is expected to decrease by 35.6%, but is expected to rebound strongly by 72.7% in fiscal year 2027. The report also highlights both upside and downside risk factors. Upside risks include greater-than-expected growth in innovative product sales, recovery in the Chinese market, and greater improvement in gross margin than expected; downside risks include weak recovery in the Chinese market, poor market response to innovative products, and continued promotional environment suppressing the recovery of gross margin. Overall, Bank of America believes that NIKE, Inc. Class B is at a crucial stage of transformation, with positive changes in the North American market providing confidence for the company, and gross margin pressure expected to gradually ease in the coming quarters. The current valuation level may provide an attractive entry point for long-term investors.