We expect leading sportswear retailer, Nike Inc. NKE to beat expectations when it reports second-quarter fiscal 2016 results on Dec 22.
Why a Likely Positive Surprise?
Our proven model shows that Nike is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.35%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Nike currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
Nike’s Zacks Rank #3 and positive ESP make us reasonably confident of an earnings beat in the quarter to be reported.
What is Driving the Better-than-Expected Earnings?
Nike outperformed the Zacks Consensus Estimate by an average of 10.2% over the past four quarters, with a positive beat in each quarter. The company’s solid quarterly performances reflect its concentration on adopting innovations to keep up with customer preferences. Nike’s results remain impressive, backed by its constant focus on exploiting growth opportunities, along with efficient risk management. Going forward, the company plans to follow these standards in order to enhance shareholder value in the long run.
Consequently, despite the ongoing currency headwinds that are expected to linger, management remains optimistic about the second quarter as it anticipates the solid momentum to continue, along with strong future orders.
For second-quarter fiscal 2016, the company anticipates revenue to grow in the mid single-digit range and gross margin to improve 25 basis points based on its efforts to clear excess inventory in North America and keep the in-line channel fresh.
Stocks to Consider
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
ConAgra Foods Inc. CAG has an Earnings ESP of +5.09% and a Zacks Rank #2 (Buy).
Carnival Corporation’s CCL Earnings ESP stands at +12.20% and it carries a Zacks Rank #3.
Lindsay Corporation LNN has an Earnings ESP of +5.17% and a Zacks Rank #3.
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