Global leader in sports equipment and apparel, Nike Inc. (NKE), remains on our Neutral list with a target price of $75.00.
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.
Nike is striving to find opportunities to expand its global footprint and augment its market share through acquiring new brands, developing its direct-to-customer business and divesting underperforming brands. Collectively, these strategies position the company strongly among competitors such as Adidas AG (ADDYY) and Brown Shoe Co. Inc. (BWS).
Moreover, this footwear and athletic apparel retailer has outperformed the Zacks Consensus Estimate in the trailing 5 quarters, with an average beat of 9.9%. In the most recent quarter, it posted an earnings surprise of 10.3% and a 37.0% increase in earnings per share, aided by healthy top-line growth, improved margins, reduced tax rate and lower share count. Net sales rose 8.0% year over year, driven by the high demand for the NIKE brand.
Going forward, we expect Nike’s upbeat performance to continue given the company’s impressive guidance for fiscal 2014. The company anticipates revenue growth for fiscal 2014 to be in the high single-digit range, while gross margin is projected to expand by 50 basis points (bps) on a year-over-year basis. With impressive top-line growth as well as margin expansion, Nike will be a sound asset for yield-seeking investors in the near future.
Apart from strong quarterly results, this Zacks Rank #2 (Buy) company’s growth prospects appear promising. We believe the company’s prudent investment as well as strategic initiatives toward product innovation and brand building will increase its customer base and profitability. Going forward, we expect Nike’s top-line growth to remain strong, given an increase in future orders.
On the flip side, rising commodity prices pose a challenge and may undermine the company’s future performance. In addition, we expect sluggish discretionary spending and intense competition amid rapidly changing customer preferences to dent Nike’s future prospects. Consequently, we prefer to keep to the sidelines at present.
Other Stocks Worth Considering
Other stocks that are worth a look in the sports retail industry include Brown Shoe Co. and Deckers Outdoor Corp. (DECK). Both the companies carry a Zacks Rank #1 (Strong Buy).
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