Wide-Moat Nike Overcomes External Challenges in Q3; Shares Slightly Undervalued

Despite concerns about slowing consumer spending and other issues, Nike’s sales growth and EPS eclipsed our estimates in its fiscal 2023 third quarter (ended February). While there was discounting to clear product, inventories were up just 16% year over year at quarter-end after being up 43% at the end of November, a positive trend. Guidance for flat to low-single-digit sales growth in the fourth quarter is slightly above our previous forecast, input costs have declined, and there should be a substantial benefit in fiscal 2024 from the end of China’s virus-related restrictions. Thus, we expect to lift our $134 fair value estimate by a mid-single-digit percentage, leaving the shares slightly undervalued.