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Weakening Dollar & Amazon Are Catalysts for Nike

Stock (Symbol)

Nike (NKE)

Stock Price

$58

Sector
Retail & Travel
Data is as of
July 18, 2017
Expected to Report
Sept 25
Company Description
nike_forreuseNIKE, Inc. is engaged in the design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. The Company sells its products to retail accounts, through NIKE-owned retail stores and Internet Websites, and through a mix of independent distributors and licensees throughout the world. Nike’s portfolio brands include the NIKE Brand, Hurley and Converse. Source: Thomson Financial
Sharek’s Take
David SharekA weakening US dollar should help Nike (NKE) in the coming qtrs. Last year NKE had 8% constant currency sales growth, but only 6% sales growth after foreign exchange. Now with the dollar trending lower, sales and perhaps profits could accelerate later this year. Nike is going to sell a limited number of products on Amazon.com, as traditional retailers continue to struggle. I feel this is good long-term, but NKE likely will play nice with department stores so don’t look for an immediate impact. Still, Adidas continues to execute magnificently and thus NKE is having trouble growing as it wants to with the fierce competition. Nike has been fantastic the past 30 years. The stock us up from fifty cents to more than 50 dollars. NKE has an Estimated Long-Term Growth Rate of 10% per year plus a 1% dividend yield, and sells for 24x earnings, which is about right. Overall this is a solid buy-and-hold stock for conservative investors, and things might be looking better later in the year if the dollar stays low. Investors liked the earnings news, and pushed the stock up 12% to a ten-month high the day after the company reported. Since the trend is your friend I think NKE stock will continue to churn higher from here, but the stock is fairly valued now.
One Year Chart
Sales grew 5% last qtr, but that would have been 7% if not for F/X. The Est. LTG fell this qtr, from 12% a year to 10%. The company expects gross margins to contract next qtr due to FX headwinds, thus NxtQtrEst was reduced from -7% to -33%. Also, Annual Profit Estimates declined for the 4th straight qtr. 2018’s figure has declined from $2.70 to $2.64, $2.56 and $2.43 the past 4 qtrs. That’s not good. But with the weakening dollar, perhaps that can turn around. Qtrly profit Estimates are for -33%, 8%, 6% and 12% profit growth the next 4 qtrs, but NKE has beaten the street the last 4 qtrs.
Fair Value
With profit growth still looking lackluster, and estimates falling, my Fair Value is a P/E of 22. But I wouldn’t be a seller of the stock at this time as it just jumped close to its highs and it seems like a breakout is on the horizon.
Bottom Line
Nike got a little ahead of itself a couple of years ago when profits were growing faster than they are now. The stock’s P/E got to 31 in 2015. Now with a P/E of 24 NKE is reasonable — but still not cheap. I expect sales growth to pick up later this year if the dollar continues to be weak. Overall this is a solid buy-and-hold investment for conservative accounts, with an Est. LTG of 10% per year in addition to a 1% yield, but the stock is fairly valued here. NKE ranks 14th in the Conservative Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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