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Nike shares jump 2% after Morgan Stanley predicts a big rally ahead on new sneakers

  • Morgan Stanley upgrades Nike to overweight from equal-weight Wednesday after the bell.
  • The firm believes Nike's sales growth will improve due to its new products such as the Air VaporMax.
  • The company underperformed the market in the previous 12 months with its shares flat through Wednesday compared to the S&P 500's 14 percent return.

Nike Air VaporMax
Source: Nike
Nike Air VaporMax

It has been a difficult year for Nike shareholders. But now a prominent Wall Street firm is saying the company's financial results will improve and investors should buy the shoe maker's stock.

Morgan Stanley analyst Jay Sole believes Nike sales will rise in the coming months due to hot new sneaker offerings. As a result, he raised his rating for Nike to overweight from equal-weight.

Nike shares rose 2 percent midday Thursday following the upgrade.

"We think the window to buy Nike at the bottom of a cycle is closing. Nike EPS and North America sales growth rates are likely troughing," Sole wrote in the report Wednesday. "We believe new Nike products like Air VaporMax, fashion shifts, and Nike's improving-more-rapidly-than-expected speed-to-market capabilities reverse headwinds experienced over the last 18 months."

Nike underperformed the market in the previous 12 months with its shares flat through Wednesday compared to the s 14 percent return.

"Competition has been a problem for Nike over the last 12 to 18 months," Sole said on CNBC's "Halftime Report" Thursday. "Going forward, Nike is going to do a little better job competing and bringing more innovation to market. That's going to help them stop the share loss they had."

The analyst raised his price target for Nike to $68 from $56, representing 18 percent upside from Wednesday's close.

Sole predicts the Air VaporMax, which the company launched March, will become Nike's next $1 billion in sales shoe after his conversations with industry sources and retailers. As a result, he estimates the firm's North American year-over-year sales growth will rise to 5 percent next quarter from his forecast of negative 2 percent in the current quarter.

"As Nike proves it can deliver winning product innovations and navigate the online transition, we think market fears subside and the stock's P/E [price to earnings multiple] expands," he wrote.

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