The number of Americans filing initial jobless claims rose slightly in the week ended Sept. 19 to 870,000, still far above pre-pandemic levels and higher than economists were expecting. The Dow Jones Industrial Average (^DJI -0.21%) managed to rise nonetheless on Thursday, up around 0.25% at 11:45 a.m. EDT. The Dow was volatile throughout the morning, so that gain may not hold.
Shares of Nike (NKE 0.48%) failed to rise along with the Dow even after an analyst talked up the company's digital transformation. Positive analyst commentary did help Home Depot (HD 0.28%) and Goldman Sachs (GS -0.08%) stocks, both of which were in positive territory by late morning.
Optimism after Nike earnings
Footwear and apparel giant Nike was hit hard by the COVID-19 pandemic earlier this year. In the quarter that ended on May 31, Nike reported a staggering 38% drop in revenue due to retail store closings. Unsurprisingly, the company posted a big net loss in that quarter.
With stores reopened, Nike is now faring much better. Results for the quarter ending on Aug. 31, reported on Tuesday, showed a 1% decline in total revenue. Sales were up 5% in the Europe, Middle East, and Africa geographic segment, and China sales jumped 6%. This helped offset a 2% decline in North America. Nike's profits rose in the quarter, up 10% due to lower costs.
Digital sales growth is helping Nike recover. Digital sales were up 82% in the quarter for the Nike brand, largely offsetting weakness in the wholesale business. Analysts at UBS believe this digital transition is in its early innings, with the potential to drive solid revenue growth and margin expansion in the coming years. UBS bumped up its price target on Nike stock to $152.
Nike's trailing-12-month earnings are tainted by the very weak quarter ended in May, so the price-to-earnings ratio based on that number may not mean much. Still, Nike stock is unquestionably expensive. UBS expects Nike to produce $4.60 in per-share earnings by fiscal 2023, putting the current stock price at about 27 times that number. That estimate assumes that Nike's business isn't derailed again by the pandemic or a weak economy.
The optimism from UBS wasn't enough to help the stock on Thursday. Shares of Nike were down 1.9% by late morning, giving up some of the stock's post-earnings gains. Nike stock is now up about 22% since the start of the year.
Analysts like Home Depot and Goldman Sachs
Nike wasn't the only Dow component getting some analyst love on Thursday. Analysts at Wells Fargo believe Home Depot stock offers an attractive entry point, despite uncertainty over the sustainability of the retailer's recent sales growth. Wells Fargo expects Home Depot's market share gains to accelerate, driven by a strong housing market and de-urbanization.
Home Depot reported comparable sales growth of 23.4% in the second quarter, but it's unknown how much of that was driven by unprecedented economic stimulus earlier this year. It's also unknown to what degree homeowners were pulling forward future projects. A combination of a weak economy, a lack of new stimulus, and demand pull-forward could cause some problems for Home Depot down the road.
Another stock viewed as attractive is Goldman Sachs. Analysts at UBS upgraded the stock on Thursday from neutral to buy, arguing that the current economic environment and market volatility from the election in November should help the company's fourth-quarter results. UBS also expects the impact of Goldman's cost-cutting initiatives to show up in its financial results in 2021.
Shares of Home Depot were up 0.6% by late Thursday morning, while shares of Goldman Sachs had surged 4.25%.