10:26 AM EST, 12/17/2024 (MT Newswires) -- Nike's ( NKE ) stock is expected to rebound over time as signs emerge that the sportswear giant's turnaround efforts under a new chief executive are materializing, Truist Securities said in a Tuesday client note.

The athletic footwear and apparel maker's shares are down about 5% since it announced in September the return of former longtime executive Elliott Hill as CEO, according to the brokerage. As a result, Nike ( NKE ) withdrew its full-year guidance in October and postponed its investor day.

"Critically, Nike's ( NKE ) guidance-pull occurred during the CEO-transition period, which means Mr. Hill has still not been able to connect with investors about his go-forward plans/outlook/strategy," Truist said in the note. However, the brokerage expects Hill's forthcoming commentary to be a positive catalyst and a "significant" driver of the stock in the near term.

Investors are generally optimistic about opportunities to turn around the company over the long term, but remain negative over the short term, according to Truist. "In our view, sentiment has gotten low enough that modestly more positive commentary/indications that the new team can start to turn things around in (fiscal 2026) should be enough for shares to outperform," the brokerage wrote in its report.

A revamped wholesale strategy should allow Nike ( NKE ) to address its current challenges, with retailers keen to grow with the company's new leadership after missing assortments over the past few years, the brokerage said. Truist said that Nike ( NKE ) accelerated promotional activity around this year's holiday season, which should help reduce inventory levels.

"We believe the stock can inflect well before we start to see fundamentals improve, due to Nike's ( NKE ) leading scale and brand equity," Truist said.

The brokerage now expects Nike ( NKE ) to post per-share earnings of $2.50 and $2.80 for fiscal 2025 and 2026, respectively, compared with its prior projections of $2.75 and $3.10. Truist attributed its lowered estimates to heavy promotions amid turnaround initiatives.

Truist remains cautious about Nike's ( NKE ) performance in China due to macro headwinds and competitive pressures in the Asian country. The company highlighted weaker traffic, persistently high promotional levels and elevated inventories in the region on its fiscal first-quarter earnings call.

Price: 78.02, Change: +0.81, Percent Change: +1.06