Global leader in sports equipment and apparel, Nike Inc. (NKE), remains on our Neutral list with a target price of $82.00.
Why Reiterate?
Nike’s strong portfolio of globally recognized brands – such as Nike, Converse, Chuck Taylor, Hurley, All Star, One Star, Star Chevron and Jack Purcell – and its focus on innovation have helped strengthen its leadership position.
We remain impressed with Nike’s strong growth and innovation trend that facilitated consistent positive earnings surprises for 6 straight quarters, alongside strong revenue growth and an optimistic guidance. The company’s average surprise for the last 6 quarters stands at 8.5%.
In second-quarter fiscal 2014, it posted an earnings surprise of 1.7% and a year-over-year increase of 4.0% in earnings per share, aided by healthy top-line growth across the globe, improved margins and a reduced tax rate, offset by elevated SG&A investments in the company’s brands and business capabilities. Net sales rose 8.0% year over year, driven by robust performance across all geographical regions and product categories.
Following its strong second-quarter fiscal 2014 top and bottom line results, the company came up with an impressive outlook for the upcoming 2 quarters and the full year indicating that the company’s upbeat performance is expected to continue in the near future. Moreover, we believe based on Nike’s remarkable top-line growth as well as margin expansion, the stock will be a sound asset for yield-seeking investors in the near term.
Moreover, Nike aims to increase its global reach and market share by aggressively expanding its operations in the emerging markets, while focusing on direct-to-consumer business and other brands, which augur well for future operating performance. Collectively, these strategies position the company strongly among competitors such as Adidas AG and Brown Shoe Co. Inc. (BWS).
Though encouraged by the above mentioned positives, we believe the stock has limited upside potential as these positive attributes are already priced into the stock. Furthermore, we expect soft discretionary spending and intense competition amid rapidly changing customer preferences to undermine Nike’s future prospects. Moreover, our Zacks Rank #3 (Hold) for the stock justifies the Neutral stance.
Other Stocks Worth Considering
Better-ranked stocks in the sports retail industry include Skechers USA Inc. (SKX) and Deckers Outdoor Corp. (DECK). Both the companies carry a Zacks Rank #2 (Buy).
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