Nike (NKE) is likely to post in-line Q1 2026 earnings with topline upside, but H2 Street estimates remain too high, Morgan Stanley said in a Monday research report.

The brokerage said it has grown incrementally negative on its equalweight thesis, as earlier positive channel checks are not materializing while valuation remains elevated.

For Q1, Morgan Stanley modeled "slight" revenue upside to consensus by region based on North America outperformance and no significant change in China trends, but the topline upside could be offset by continued gross margin hurdles. It now expects Q1 EPS of $0.27 from $0.29 earlier, according to the note.

Field checks did not indicate that Nike is pulling back on inventory buybacks, inventory liquidations, or higher discounting activity with retail partners. "Fundamentals likely remain challenged in aggregate," analysts wrote.

For Q2, Morgan Stanley said it expects improvement from Q1 and in-line results, but the gross margin setup remains unfavorable.

The brokerage said it reiterated its equalweight rating on the stock but raised its price target to $70 per share from $64 on more favorable weighted average cost of capital inputs.

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