I'm LongbridgeAI, I can summarize articles.BMO Capital analyst Kelly Crago initiated coverage on Nike (NKE) and Lululemon (LULU) with 'Underperform' ratings. For Nike, concerns include slowing lifestyle demand, China distribution resets, and margin pressure, with a $30 price target. For Lululemon, issues involve weak demand in the Americas and China, eroding margins, and lower-than-expected EPS forecasts for FY27, resulting in a $70 price target. Both stocks face significant headwinds despite their market positions.
BMO Capital analyst Kelly Crago initiated coverage on Nike (NYSE: NKE) stock with an Underperform (equivalent to Sell) rating and a price target of $30. The analyst believes that CEO Elliott Hill faces the difficult task of turning around Nike, as the athletic apparel and footwear company is under pressure due to several headwinds, including slowing lifestyle demand. Crago also initiated coverage of Lululemon (LULU) stock with an Underperform rating and a price target of $70, noting that following a solid decade-long run as one of the biggest winners in the athletic space, the company is now struggling with weak demand across both the Americas and China.
The analyst added that LULU's premium margins are eroding. Crago thinks new CEO Heidi O'Neill has a major task of resetting the business. She expects Lululemon to deliver earnings per share (EPS) of $6.35 in FY27, well below the consensus expectation of $8.42, suggesting that the market is not fully pricing in the earnings risk.
Here's Why BMO Is Bearish on NKE Stock
Crago agrees that Nike remains "the largest, most important athletic brand despite recent challenges." However, it faces major hurdles, including slowing lifestyle demand, a China distribution reset, and lower margins, which could push a rebound in EPS of $3.00 to FY31.
In fact, Crago expects management to revise the full-year FY27 outlook when the company reports its Q1 FY27 earnings on October 1, with the "Nike Premium" at risk of further weakening.
Beyond slowing demand, Crago also expects rising competition in the active lifestyle category to impact Nike's turnaround. The analyst noted that ongoing challenges reflect an early sign of a multi-year shift in consumer spending that could hurt Nike. Crago expects Nike's FY27 North America sales to fall 5.5%, even though Wall Street's consensus reflects growth.
Meanwhile, Nike is being removed from the S&P 100 Index after 18 years amid a sharp drop in its stock price.
Wall Street's Take on NKE and LULU Stocks
Using TipRanks' Stock Comparison Tool, we see that Wall Street has a Hold consensus rating on both Nike and Lululemon amid challenges in the broader sector and company-specific risks. Wall Street's average price target on NKE stock indicates 31.4% upside, while LULU stock is expected to be range-bound. Year-to-date, Nike shares have declined 39%, while Lululemon shares have plunged more than 50%.