RBC sees Nike's dominance in sportswear continuing and says now is the time to snap of shares of the retailer. The firm on Thursday initiated coverage of Nike with a buy rating and a $125 price target, implying a 27% upside to shares. Nike has shed 40% year to date through Wednesday's close. "Nike is the 100lb gorilla in sportswear with #1 market share, leading product franchises, and a Digital business that will drive future growth," wrote analyst Piral Dadhania in a Thursday note. "We view China recovery as the catalyst to improve sentiment, which shows early signs of promise." Unrivaled by competition Nike is the largest company in sportswear, which is set to grow 7% in the coming years, and its leadership is solid, according to RBC. That's led to attractive margins and makes it a more defensive buy than other retail stocks. "Nike marketing spend ($4.2bn) is unrivaled, despite lower relative spend, contributing to its attractive margin profile," said Dadhania. "We believe Nike is relatively more defensive as a consumer stock given its product range desirability in Footwear, younger consumers attribute high priority to the category, and Nike has consistently gained share." Nike has also stayed one step ahead of its competition through digital and direct to consumer growth. This model shift should drive further growth, with RBS forecasting 1.2% of gross margin uplift from the strategy. "Nike's Consumer Direct Acceleration strategy (underpinned by strong management and Board with native technology and digital experience) is transforming its business model, which should lead to greater distribution control, higher levels of direct consumer engagement and margin upside," said Dadhania. "Nike Digital generated $11bn revenues in FY22 (almost 60% of DTC), of which half are derived from its app suite." China growth In addition, as China comes back online following prolonged Covid-lockdowns, there are green shoots for Nike in the region. RBC estimates a 12% market growth outlook, 10% five-year revenue and 13% EBIT CAGR with margins moving to about 35%. If margins in China recover to their peak of 38%, RBC sees mid-single digit earnings upside for Nike. "Near term, demand trends in all markets ex China remain healthy, whilst price increases for Autumn/Winter '22 and Qatar World Cup should support revenue growth in upcoming quarters," Dadhania wrote. "China sell-out has turned positive in August which is encouraging, although inventory clean-up will take until the end of 2022."