Nike Inc. (NKE, Financial) is the world's leading designer and marketer of high-quality athletic footwear, athletic apparel and accessories. For a giant in the athletic footwear, apparel and equipment business, the competition is hard, but the firm has key attributes such as size, brand and competitive advantages that should help to maintain its leadership.
The athletic apparel market can provide opportunities for other companies to grow its portion of the cake (market share). Apart from competition, the company faces some other risks, including weaker-than-expected revenue growth and changes in consumer demand. When looking at Nike’s principal drivers, we’ve got its innovation and marketing as the primary catalyst in all its markets (sports apparel or footwear market).
Turning our attention to international markets, foreign markets are key zones for further growth. However, the U.S. continues to post good results.
The company reported second quarter fiscal 2016 EPS of 90 cents on revenue of $7.7 billion, up 12% on a currency neutral basis. For the Nike brand, revenue has reached $7.3 billion, up 13% on a currency neutral basis, while Converse revenues were $398 million, down by 5% on a currency neutral basis. In this segment it has achieved strong growth in North America but was offset by poor performance in European markets. Although selling and administrative expenses increased 5% to $2.6 billion, Nike’s gross margin inched up 0.05% to 45.6.
There are good opportunities in China, based on reported revenue of more than $3.7 billion in fiscal 2015.
Most analysts have a bullish opinion on the firm: two Sell rating(s), three Hold rating(s), 27 Buy rating(s). Some of them include:
- Feb. 16 – Citigroup \reiterated its “buy” rating.
- Feb. 11 – Nike had its price target of $80 from analyst at Nomura.
- Jan. 22 – Nike had its price target of $70 from analyst at Robert W. Baird.
- Jan. 21 – Nike had its price target lowered by analysts at Goldman Sachs from $75.50 to $74.
When looking at the consensus price target, it stands at $77.43 according to MarketBeat, giving an interesting 16.5% upside potential from its latest close.
The stock sells at a trailing P/E of 30.19x, trading at a premium compared to a median of 18.36x for the industry. To use another metric, its price-to-book ratio of 7.9x indicates a premium versus the industry median of 1.65x, and the price-to-sales ratio of 3.48x is above the industry median of 0.48x.
Finally, the share price has increased by 28% in the past 12 months, and the company has repurchased, as of the end of the second quarter, 92 million shares with an average price of approximately $78.19 per share. This means the firm thinks the stock is undervalued. It will be a nice bet for the rest of 2016.
Caxton Associates (Trades, Portfolio) initiated a new position with 75,000 shares, and there are more bullish than bearish activity in the last quarter of 2015. John Burbank (Trades, Portfolio) impressively upped his stake by almost 7000% to 1,870,101 shares and Steven Cohen (Trades, Portfolio) did the same to 2,629,600 shares and having increased his stake by 1,685%. Others gurus like Paul Tudor Jones (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), John Keeley (Trades, Portfolio), Chris Davis (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) also bet strong in the stock.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
