Given the latest trade war escalation, investors are keeping a very close watch on Nike Inc. (NKE- Get Report) right now. After Chinese officials cancelled their planned trip to U.S. farms following President Trump's statement that he doesn't feel the need to finalize a trade agreement before 2020 elections on September 20, the S&P Global 500 and NASDAQ dipped 0.5% and 0.8%, respectively.

"This is why China has been reluctant to continue to negotiate with the Trump administration, because as soon as it looks like we’re moving toward some sort of constructive talks, there is a change in direction and it seems like a lot of head fakes," EventShares Chief Investment Officer Ben Phillips noted.

Bearing this in mind, investors want to know if Nike is still a compelling investment ahead of its September 24 fiscal year Q1 earnings release. The athletic retailer relies on China for not only manufacturing but also for a significant portion of its revenue.

Nonetheless, Guggenheim’s Robert Drbul deems Nike a “best idea”, stating that investors could see an award worthy performance that amounts to even more gains on top of its 17% year-to-date growth.

With NKE making up about 5% of investors’ portfolios on average based on TipRanks Smart Portfolio users, we wanted to take a closer look to get a better sense of its standing going into the earnings release.

Here’s what we found out.

Ahead of Fiscal Q1 Earnings

As investors look forward to the earnings release, China is still expected to be a significant focus for management. While Nike sources materials and manufactures its products all over the world, its dependence on China is still a concern among investors. According to Drbul, the country could generate approximately 18% of Nike brand revenue for full year 2020 and remains an important piece of its manufacturing operation.

While Drbul does note that foreign exchange could weigh on results, the five-star analyst cites Nike as “one the best positioned companies to navigate the current environment”. He argues that the company’s continued focus on maintaining a strong relationship with both consumers and the Chinese government is evidenced by the $2.4 billion addition to its top line in the last three years.

Based on healthy consumer demand for its innovative products as well as its strong digital presence, Drbul believes Nike could see 5% revenue growth. His estimates also indicate 20 basis points of gross margin expansion.

Positive Catalysts in 2020 Could Drive Growth

Drbul cites several positive catalysts as possible top-line drivers for full year 2020. For starters, the company announced back in March that it would be revamping its more basic shoes in the under $100 price range. In an effort to be more competitive at every price point, NKE will inject more innovation into the designs.

“We have about three quarters of our product at the core level, and footwear is going to be refreshed starting in back-to-school,” CEO Mark Parker stated.

This innovation is also making its way into more of NKE’s premium products. Its recently launched Joyride shoe line, which offers cushioning soles made up of TPE beads to provide a “personalized underfoot experience with great impact absorption in a surprisingly light, energy-returning package”, has experienced solid demand. This is on top of the strong performance from its Air VaporMax and 270 shoes.

Not to mention ahead of the 2020 Olympics in Tokyo, the company looks poised for long-term gains thanks to its new products as well as its women’s apparel segment. As a result, Drbul expects to see over 8% top-line growth.

All of this lends itself to the analyst’s conclusion that NKE will reward investors in the long-run, prompting a reiteration of his Buy rating and $100 price target on September 19. “NKE has created the gold standard in regards to its DTC offering globally and continues to enhance its offering to cater to consumers, fostering further demand and interaction with the brand (through the company's apps and stores). Additionally, NKE has been working with retail partners to create a differentiated experience at wholesale customers,” he explained. Drbul added that he sees 15% upside from the current share price.

The Bottom Line

Another top analyst, Mitch Kummetz, takes a similar approach when it comes to the retail giant. “In short, we believe NKE is taking share and expect this to continue, and this is the main reason for our bullishness. At the premium end of the spectrum, two of NKE’s biggest franchises, Max, are two of the strongest performing franchises in the market today, and the company has done well to layer on new programs such as the portfolio,” he commented. As a result, the Pivotal Research analyst reiterated his Buy rating and $101 price target on the same day. His price target conveys his confidence in NKE’s ability to surge 17% over the next twelve months.

All in all, the rest of the Street is on the same page. With 15 Buy ratings compared to only 3 Holds and 1 Sell assigned in the last three months, the word on the Street is that NKE is a ‘Moderate Buy’. Notably, 10 of these ratings were received in just the last 18 days, with Morgan Stanley's Kimberly Greenberger setting the top price target of $108 on September 20. Its $95 average price target suggests 9% upside potential.

While the average analyst consensus is a 'Moderate Buy', when you view the Best Performing Analyst Consensus & Price Target the consensus changes to 'Strong Buy'. The price target also gets a lift, with it now at $97 implying 12% upside potential.

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