The market is too optimistic about how quickly better products and cost savings will restore profits. I expect modest earnings recovery, but continued lifestyle and China weakness supports a twelve-month target of $29.98.
Key points
- 7.5% operating margin in FY2028 is needed to support today's price at my earnings multiple.
- $1.36 a share is my FY2028 adjusted earnings forecast, allowing some recovery.
- $29.98 a share is my twelve-month target, including a substantial brand premium.
The call
The market expects recovery too quickly. At 22 times earnings, today's price requires a 7.5% FY2028 operating margin, the share of sales left before interest and tax. My FY2027 assumptions imply roughly 6%. Better warehouse economics are encouraging, but discounts still hurt margins.
Why gross margin improved in Q1 FY27 (basis points)Nike October 2, 2026 10-Q; year-over-year contributions, total improvement 60 basis points.
I expect improvement, not a completed turnaround. My FY2028 forecast has broadly flat sales and a 6.5% adjusted operating margin. Performance products can keep growing while lifestyle shoes and China contract. Management now expects cleanup beyond FY2027, while the largest cost savings arrive later. November's strategy presentation will test that timetable.
Valuation
| Our estimate or assumption | Value |
|---|
| FY2028 revenue | $42.7 billion |
| FY2028 adjusted operating margin | 6.5% |
| FY2028 adjusted diluted earnings | $1.36 a share |
| Twelve-month earnings multiple | 22 times |
| Twelve-month target | $29.98 a share |
The calculation assumes a 25% tax rate, $50 million of net interest expense and 1.50 billion diluted shares; it excludes Pace restructuring charges but retains employee stock compensation. The 22-times multiple gives the franchise a $5.45-per-share premium over an illustrative 18-times ordinary-business valuation, while high rates limit further expansion.
The recovery needed to support today's priceOur FY28 estimates as of October 8, 2026; $42.7 billion revenue and 22 times adjusted earnings.
My record leans heavily toward sells, so this call allows earnings recovery and a brand premium; faster improvement remains the principal upside risk.
Risks
- Product launches could lift sales faster than forecast; watch wholesale orders and full-price selling, not launch publicity.
- China could stabilize sooner; watch traffic, retailer inventory and quarterly revenue declines.
- Cost savings could arrive earlier; watch profit gains after reinvestment, since announced savings are cumulative, not annual.
What would change my mind
I would reconsider if two consecutive quarters show improving full-price footwear demand and management supports a FY2028 adjusted operating margin above 7.5%.