RBC Cuts Nike to Sector Perform on Weak Turnaround

Key Moments

Rating and Target Cut on Slower Turnaround

RBC Capital Markets reduced its recommendation on Nike, Inc. (NYSE:NKE) to Sector Perform from Outperform and sharply reduced its price objective to $50 from $70. The move reflects the bank’s view that Nike’s operational turnaround is advancing more slowly and across a narrower front than initially expected, with limited near-term catalysts to re-rate the stock.

Nike shares were down 1.2% in premarket trading by 04:34 ET following the downgrade.

Analyst Piral Dadhania noted that the company’s recovery under CEO Elliott Hill, who assumed the role in October 2024, is underway but lagging prior expectations. In response, RBC cut its fiscal 2027 (FY27) and FY28 earnings-per-share projections by 9% and 13%, respectively, which places the firm’s estimates about 2% below consensus for both years.

Dadhania wrote, “Nike turnaround under Elliott Hill is making progress, but slower and narrower than we were anticipating,” and highlighted that factors such as the World Cup, ongoing inventory cleanup, and the absence of new growth drivers are unlikely to trigger a durable revenue inflection over the remainder of calendar 2026.

Share Performance and Earnings Revisions

Since Hill’s appointment, Nike’s stock price has dropped by roughly 50%, RBC said, in contrast to Adidas, whose shares have risen around 70% over a similar period following its own CEO change. At the same time, Nike’s 12-month forward EPS expectations have been lowered by about 40% since Hill took over.

Growth Outlook and Market Share Pressures

RBC currently projects Nike’s three-year revenue compound growth at approximately 3%, trailing the sector’s unweighted average of 6% and significantly below adidas’s outlook at 8%. The firm highlighted sustained competitive pressure, noting that Nike has surrendered more than 4 percentage points of sports footwear market share since 2023. Brands such as On Running, New Balance, Hoka, and Asics have been among the beneficiaries of this shift.

In women’s apparel, RBC pointed to intensifying competition as well, citing Lululemon, Alo Yoga, and Vuori as holding stronger positions in the premium segment.

Wholesale-DTC Imbalance and North America Dynamics

One of RBC’s central concerns is the widening divergence between wholesale sell-in and direct-to-consumer (DTC) sell-out, particularly in North America. Dadhania emphasized that a sustained recovery in full-price DTC performance is regarded as “the key unlock which should improve through FY27E as comparatives ease.”

Impact of Dick’s-Foot Locker Deal on Nike

RBC also pointed to the Dick’s Sporting Goods acquisition of Foot Locker as a complicating factor for Nike’s channel strategy. According to the firm, the combined entity accounts for an estimated 11% of Nike’s total revenue base and approximately 20% of its wholesale business. RBC expects this larger partner to adopt stricter purchasing discipline and to eliminate about 30% of underperforming Nike styles from its assortment.

Valuation Framework and Risk to Targets

RBC’s revised $50 price target is derived from a discounted cash flow model that uses a weighted average cost of capital (WACC) of 8.5% and a terminal growth rate of 2.5%. On this basis, the firm sees roughly 15% upside from the current share price level.

However, Dadhania cautioned that if Nike’s valuation multiple were to revert to the sector average, the implied fair value would fall to approximately $34-$38 per share, significantly below the DCF-based target.

Looking ahead to an upcoming Capital Markets Day that Nike has indicated will take place in Fall 2026, Dadhania wrote, “We are cautious on credibility of any financial targets,” underscoring RBC’s tempered confidence in management’s future guidance.