Lingering production issues and slowing demand in China should be an overhang on Nike shares in the near term, according to HSBC. HSBC downgraded Nike to a hold rating from a buy. The firm also trimmed its price target on Nike to $182 from $184. The new projection implies about 16% upside from Nike's closing price Friday. "We have no doubt about long-term growth drivers ... of China's sportswear industry, but short-term issues are lasting longer than we had expected," HSBC's Erwan Rambourg said in a note. "We hoped Western brands would have started to regain some footing by now, but we see no signs of a real pick-up and the breadth of the decline at Nike was a bit of a shocker to us." Nike's revenue in Greater China declined 24% year-over-year in the fiscal second quarter of 2022, HSBC highlighted. The effects of Covid-related production challenges in Vietnam from earlier in 2021 are also expected to persist in the next few months, HSBC said. "Inventory shortages created during July-September 2021 lockdowns and in the following months (with only a gradual reopening) should continue to impact the Western sporting goods players' top-line for at least the first few months of 2022e, due to higher lead times for goods to reach shelves," Rambourg said. Plus, the firm does not see much good news on the immediate horizon that could boost Nike shares. "We just don't see many positive catalysts in the short term," Rambourg said. Still, the firm is bullish on Nike's prospects in the longer term. "We continue to be impressed by the spirit of conquest of Nike as it defines itself predominantly as a growth company." Nike shares returned 17.8% in 2021, underperforming the S & P 500's nearly 27% gain. The stock is down 5.8% in 2022. Shares were down 1.5% in the premarket Monday. —CNBC's Michael Bloom contributed reporting.
A man walks past the Nike logo seen in a window of a brand store in Kiev.
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Lingering production issues and slowing demand in China should be an overhang on Nike shares in the near term, according to HSBC.