Vtrade Proposes to Sell Nike Inc. (NYSE: NKE)

Nike Inc

NYSE: NKE

COMPANY DESCRIPTION

Founded in –1977 | Current Market Cap – 107.21 Billion USD

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. The company offers NIKE brand products in six categories: running, NIKE basketball, the Jordan brand, football, training, and sportswear. It also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, lacrosse, skateboarding, tennis, volleyball, wrestling, walking, and outdoor activities; and apparel with licensed college and professional team and league logos, as well as sells sports apparel. In addition, the company sells a line of performance equipment and accessories, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities. NIKE, Inc. is headquartered in Beaverton, Oregon.

RECOMMENDATION

We rate Nike Inc. a Sell at USD 85.17 for a target of USD 72.19 in one months.

Below are the basic reasons to recommend this stock as a Sell.

·         Stock Appears Overvalued: Considering price-to-earnings (P/E) ratio, NIKE looks overvalued when compared with the industry and the S&P 500. The stock has a trailing 12-month P/E ratio of 33.1x, which is above the median level of 30.6x but below the high level of 34.6x, scaled in the past year. On the contrary, the trailing 12-month P/E ratio for the industry is 29.5x and the S&P 500 is 17.5x. Given these factors, we believe that the stock is quite stretched from the P/E aspect.

·         FX Headwinds Hurt Outlook: Despite a strong quarter, adverse impacts of FX headwinds somewhat hurt guidance for fiscal 2019 and the third quarter. Notably, the currency environment has turned unfavorable lately due to the global trade and geopolitical dynamics, which has led to strengthening of the U.S. dollar. This is likely to weigh on the company’s sales, on a reported basis.

·         Based on the existing foreign exchange rates, reported revenue growth is anticipated to be more than 3 points lower than, or at the lower-end of the company’s projected currency-neutral revenue growth of high single-digits. For third-quarter fiscal 2019, management expects reported revenues to be about 4 points lower than the anticipated currency-neutral revenue growth of high-single-digits.

·         Nike weakening balance sheet, which offers it the financial flexibility to drive future growth. Further, the company has time and again testified its commitment to enhancing its shareholder value, aided by its weak financial position. Over the past 14 years, the company has distributed regular dividends and made share repurchases to improve shareholder returns. Nike repurchased 16.1 million shares for $1.3 billion in the fiscal second quarter under its $12-billion share repurchase program, approved in November 2015. With this, it has repurchased about 183.3 million shares for roughly $11.3 billion as of Nov 30, 2018. Additionally, the company has authorized a new four-year $15-billion share repurchase program in June 2018, which will start when the existing program is completed which is not going to work in its favor because of the growth concerns.

EARNINGS & REVENUES

The company’s earnings of 52 cents per share rose 13% year over year and surpassed the Consensus Estimate of 45 cents. With this, the company reported its 26th straight earnings beat. Solid sales growth improved gross margin and reduced average share count aided the bottom line. However, the metric was somewhat offset by higher selling and administrative expenses, and tax rate.

Revenues increased 10% to $9,374 million, which exceeded the Consensus Estimate of $9,158 million. This outperformance was primarily driven by the company’s solid execution of the Consumer Direct Offense globally along with revenue growth (in constant currency) of 20% at international locations and 9% in North America. Additionally, continued strength in NIKE Digital, which delivered 41% growth, provided a boost to the top line. The metric grew 14% on a currency-neutral basis.

BALANCE SHEET

NIKE ended the fiscal second quarter with cash and short-term investments of $4,041 million, long-term debt (excluding current maturities) of $3,466 million and shareholders’ equity of $8,729 million. As of Nov 30, 2018, inventories inched up 1% to $5,388 million.

In the fiscal second quarter, NIKE bought back 16.1 million shares for $1.3 billion under its four-year $12-billion program that was approved in November 2015. As of Nov 30, the company’s total repurchases under the program amounted to 183.3 million shares for roughly $11.3 billion.

The company also authorized a new four-year $15-billion share-repurchase program in June this year, which will commence when the existing program is completed. NIKE expects the current program to be completed within fiscal 2019.

Disclaimer:

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.