Nike Inc. (NKE, Financial) is expected to report earnings for the fiscal quarter that ended in May after market close on Thursday, June 28.
Analysts estimate an increase of 4 cents compared to the prior-year quarter of 60 cents. The forecast of 64 cents is a mean of a total of 29 predictions of surveyed analysts. The estimates range from a low of 56 cents to a high of 76 cents.
Revenue is expected to grow 8.4% compared to the prior-year quarter of $9.41 billion, as of May 31. A total of 27 analysts were surveyed on sales. The average is a mean of estimates that range from $9.25 billion and $9.51 billion.
The company is also expected to provide shareholders with figures on earnings and sales for fiscal 2018. If Nike meets predictions, the company will close the annual income statement with a net profit of $2.35 per share, which will be a 6.4% decline on a year over year basis, backed on revenue of $36.03 billion. Revenue is expected to increase almost 5% compared to full fiscal 2017. According to the GuruFocus chart, Nike is growing revenues at an average rate of 8.2%.
NKE data by GuruFocus.com
The ability to steadily increase turnover has enabled Nike to pay dividends to its shareholders for more than 30 years. The distribution of levered free cash flow, or about 75% of operating cash flow, is done at a rate of 70% net earnings, GuruFocus indicates. The chart below illustrates the trend in Nike’s annual net income and the last five-year average growth rate of 14.4%:
The American apparel company has squeezed cash flow of $3.44 billion from its last 12 months operations, which also includes transactions in the accessories and sports equipment industry.
GuruFocus has ranked the ability of Nike to produce income, grow and remain profitable with a 7 out of 10 rating. The next five years should leave the company’s profitability and growth rating unchanged since analysts predict that earnings will annually grow based on an average rate of 12.07% versus an annual rate of 12.25% over the last five years.
Revenues are projected to reach $38.616 billion in full fiscal 2019, which is a 7.2% increase year over year. Revenues are projected to reach $41.325 billion in full fiscal 2020, a 7.02% from the prior-year. Both increases are almost in line with trading over the last five years.
Nike’s net margin should grow a total of 3.5 percentage points to 8.6% in 2019 and 0.7 percentage points to 9.3% in 2020. The company has a current net margin of 5.11% versus an industry median of 4.07%.
GuruFocus also forecasts an increase in the annual dividend to 86 cents per ordinary share in 2019 and to 90 cents per share in 2020. That compares to 77 cents paid by the company in 2018.
The cash flow is distributed every three months at a cash quarterly dividend of 20 cents. If held constant, the amount leads to a forward annual dividend of 80 cents per ordinary share, granting 1.08% versus an industry median of 2.13%.
GuruFocus assigns a financial strength of 7 out of a total of 10, which indicates that the company is less leveraged than its peers. The company has a sizeable war chest of $4.8 billion in cash on hand and security to support the debt.
The stock in Nike is 16% up this year to $73.43 per share. Nike has a market capitalization of $118.35 billion.
Nike could be overvalued by the market since the current share price is profoundly beyond the Peter Lynch Earnings Line (P/E = 15) of $15.9 and the Price at Med P/E without NRI (P/E = 20.04) of $21.2 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
