Analysts say this stock could see 20%+ upside over the next year.
Nike (NYSE: NKE) dropped a bit of a bombshell this week: it broke up with Amazon (NASDAQ: AMZN).
The sneaker and athletic apparel maker will no longer sell its merchandise through Amazon in a bid to focus on its own direct-to-consumer business, a move that could give other retailers the confidence to follow in its footsteps.
“Brands don’t need Amazon,” said Jeffries analyst Randy Konik. “Amazon had a delivery speed advantage, but that advantage has compressed. With Nike leaving the Amazon platform… it strengthens our view that retailers/brands won’t be displaced by Amazon.”
Konik continued, “The move shows us that strong brands realize that traffic driven to their own site (e.g. NIKE.com) is self-sustaining, more profitable, and actually brand enhancing, while traffic and incremental revenue from Amazon.com is less profitable but also less brand enhancing. We believe many strong apparel (and even non-apparel) brands will continue to avoid or curb their relationships with Amazon in the future.”
“Amazon is just a traffic aggregator that reduces friction in consumption… it doesn’t build communities,” Konik said.
Raymond James analyst Matthew McClintock chalked Nike’s decision to leave the e-commerce giant up to a lack of success on the platform.
“[Our] channel checks indicate that, despite the partnership with AMZN, the brand’s presentation within the AMZN online marketplace remained suboptimal, with continued pressure from the problem related to counterfeit merchandise,” McClintock said.
But while in the immediate aftermath of Nike’s announcement, Amazon shares don’t seem to be hurting much, there’s one stock that could stand to benefit from the decision: Foot Locker (NYSE: FL).
Foot Locker shares jumped 3% the day of Nike’s announcement, and that’s no surprise to McClintock.
“While we never expected marquee product to be sold on AMZN, we still believe that the prior NKE/AMZN relationship announcement served as an overhang to FL’s stock valuation that is now removed,” McClintock said. “We believe FL’s dominant position as the single best physical athletic footwear distribution point in the world is only becoming increasingly more important to NKE’s long-term strategy, particularly given the news that the largest digital distribution network in the world (AMZN) is no longer a factor.”
Amazon aside, analysts are certainly bullish on Foot Locker shares. The average price target for the stock is $55.05, indicating nearly 21% upside over the next twelve months.