Are Nike CEO Elliott Hill's Turnaround Efforts Paying Off? Wall Street Seems to Think So.

Nike (NYSE: NKE) CEO Elliott Hill took the reins of the vaunted sportswear giant a year-and-a-half ago with a tall task ahead of him.

Hill was asked to turn around the struggling Swoosh, which was facing the biggest drawdown in its history as a publicly traded company. Revenue growth had fallen as low as negative double digits, as Nike was losing share to upstart challengers like Deckers' Hoka and On Holding.

Since taking over Nike, Hill has made a lot of changes. He's refreshed the management team, streamlined the organizational structure, and brought the focus of the company back to sport. He's also stepped up investments in innovation, pulled back on legacy styles, and reestablished relationships with key wholesale partners after the company overinvested in the direct-to-consumer channel.

Some of those efforts have paid off. Nike's revenue has stabilized with sales up 1% to $12.4 billion in the fiscal second quarter, its most recent one, and it's returned to growth in running, one of its biggest categories.

However, Nike has slumped in recent months and is back to hovering around an 8-year low as margins have continued to compress as the company invests in the turnaround. With the share price now below $55, Wall Street has taken notice.

Image source: Nike.

Wall Street smells opportunity

Barclays upgraded the stock on Wednesday, lifting its rating from neutral to a buy-equivalent and raising its price target from $64 to $73.

Barclays noted Nike's improving inventory levels, which should help lift margins, and that the recovery in running could pave the way for the rest of the business.

Wells Fargo also recently reiterated its buy-equivalent rating on the stock, though it removed Nike from its list of top picks. Finally, Jefferies said that commentary from Dick's Sporting Goods in its fourth-quarter report gives it confidence in Nike's wholesale recovery.

Is Nike a buy?

Nike stock is now down 70% from its all-time high, which came at the end of the pandemic-era stock market boom. However, the stock isn't exactly cheap. In fact, Nike trades at a price-to-earnings ratio of 32 as its earnings per share has tumbled along with the stock.

The buy case for the stock, therefore, requires a real turnaround in the underlying business, though the seeds for that are there. Analysts expect profits to fall sharply when Nike reports third-quarter earnings later this month, but they see the company returning to bottom-line growth after that.

Despite its woes, Nike still has a lot of competitive advantages, including its well-known brand and roster of star athletes. Hill looks like he's making the right moves, and Nike should eventually find its way back to growth.

Investors will have to be patient, but Nike looks like a buy at the current price. The components of a turnaround are there. Still, it's up to Hill to put them together.

Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Deckers Outdoor, Jefferies Financial Group, Nike, and On Holding. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.