By: Craig Bowles
Nike Corporation (NKE) is slated to report 2Q 2017 earnings after the close on Tuesday, December 20th. The earnings release is expected at approximately 4:15 p.m. ET with a 5:00 p.m. conference call webcast available at Nike Investor Relations. The athletic footwear and apparel maker’s brand alone is valued at $10.7 billion, making it the most valuable brand among sports businesses. Nike is an S&P 500 component and was added to the Dow Industrial Average in 2013, so results have an increased market-moving impact. Nike stock split two-for-one on December 24th, 2015.
Outliers & Strategy
- Earnings Per Share (EPS): The Street estimate is $0.43 (range $0.41 to $0.48) (Source: Yahoo! Finance). Consensus was $0.52 three months ago.
- Revenues: Analysts expect an increase of 5.3% y/y to $8.10 bln (range $8.03 bln to $8.23 bln).
- Future Orders: Last quarter’s 5% y/y rate had an ex-forex rate of 7%, so the ex-forex is still running close to 1.4x.
- Price/Earnings of 23.3 compares to a 5-year average of 24.7; Price/Book of 7.1 compares to a 5-year average of 5.6; Price/Sales of 2.7 compares to a 5-year average of 2.4; Price/Cash Flow of 27.0 compares to a 5-year average of 23.2. Dividend yield of 1.3% compares to a 5-year average of 1.2%.
- Analyst view Nike with 21 Buy ratings, 11 Hold, and 1 Sell, according to MarketBeat.com.
- Nike insiders sold a net 120,430 (bought 23,879,305 last qtr) shares over the last three months but bought a net 23,258,278 shares in the past year. (source: NASDAQ.com) The company has a four-year $12 billion share repurchase program that runs through Q32020 following the previous $8 billion and $5 billion buyback programs that also ran four years.
- Nike results could impact other athletic footwear companies, such as Finish Line (FINL), Shoe Carnival (SCVL), Steven Madden (SHOO), Foot Locker (FL), DICK’S Sporting Goods (DKS), Wolverine World Wide (WWW) and Skechers (SKX). Performance apparel makers Under Armour (UA) and lululemon athletica (LULU) could be impacted, as well.
- Nike shares have a 1-day average price change on earnings of 4.12%. Options are pricing in an implied move of 5.43% off earnings.
- 12/12: Susquehanna believes that Wall Street is overly concerned about potential market share losses in basketball, even as other parts of Nike’s business thrive and notes that Nike is taking over the NBA apparel contract next year, according to a post on Barron’s.com.
- 12/07 Cowen & Co. downgraded Nike to Market Perform from Outperform citing overly rosy expectations and increasing competition. Sees a high probability that Nike reduces second half FY17 guidance or guides Q3 below consensus, according to a post on Barron’s.com.
- 12/06: A Nike-branded Apple Watch targeting runners probably has low expectations given the 71% decline in sales for Apple Watch in the most recent quarter, according to a post on Forbes.com.
- 12/01: Nike’s first-ever self-lacing sneakers, the HyperAdapt 1.0, is now available for $720, according to a post on Quartz.com.
- 11/07: Some $1.9 billion worth of Nike shares are now held short, up 150% over the last year, according to a post on Barron’s.com.
- 11/03: Citi sees a 15% dividend hike ahead for Nike and more share buybacks, according to a post on Barron’s.com.
Nike made a new all-time high of $68.19 on December 23, 2015 and has trended lower since. Seasonality tends to be favorable in spring and summer, so the stock moving below trend in the spring of 2016 was a bad omen. Point and figure technicians have a bearish price objective of $39 but their uptrend line is $45. (Chart courtesy of StockCharts.com)
Analysts remain relatively bullish on Nike and this is probably assisted by the increased four-year stock buyback plan. Insider buying helped support the stock this past summer but the last three months have lacked that support. Nike beat estimates by an average of 3c the three quarters before last quarter’s 17c beat. Estimize consensus for an EPS of $0.47 on revenue of $8.142 bln compares to analyst consensus of $0.43 on revenue of $8.10 bln. Future orders growth is always of interest.
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