by Marc Bastow | August 22, 2012 9:35 am
It’s getting close to the time of year that you either love or hate: football season.
If you’re a fan of the NFL, love cheering on your college alma mater or local high school team, or help your kids as a Pop Warner parent, you know that training camps are here, and the regular season is about to kick off.
And in case you haven’t noticed, football equipment — as well as gear for the rest of fall sports — is prominently displayed on sporting goods retailers’ shelves, in magazines and newspaper ads, and along the right rail on every sports website on the planet.
Also prominently displayed: the logos of numerous publicly traded companies that make serious money on the games we love.
Sports is a multibillion-dollar industry, and with America’s most beloved sport about to start another season, athletic apparel will be smack-dab in the spotlight. That means eyes for them … and depending on where you put your money, it could mean strong returns for you.
Here’s three companies investors should put on their team before the opening kickoff:
Give Nike (NYSE:NKE) founder Phil Knight credit … you know, beyond reinventing athletic footwear, smartly latching onto and building the business through Michael Jordan, then making sure another all-time great, LeBron James, was signed up.
Nike pulled off the sponsorship coup of the year when they garnered a five-year deal to be the exclusive on-field apparel provider for all 32 NFL teams, ousting Adidas‘ (PINK:ADDYY) Reebok unit, which had held jersey rights for a decade.
You can order the Nike uniforms — dubbed the “Elite 51” series — via the NFL Shop, team websites, team shops, sports retailers — just about anywhere. Nike is believed to have paid $1.1 billion for the deal; while the effect on Nike’s revenues are unknown, Reebok had brought in about $350 million annually on NFL gear sales.
Nike reached all-time highs in late spring before slumping on a poor quarterly performance and outlook, though it has rebounded and currently is trading flat on the year. The company also recently announced it would increase sneaker prices before back-to-school season, reportedly to offset rising labor and commodity costs.
While a trailing P/E of 20 is a bit high, its forward P/E of 16 is a bit more down to earth. NKE also pays a modest quarterly dividend — currently yielding 1.5% — that has grown by 50% since 2008. Nothing to hang your hat on, but it should provide a little downside protection.
Earnings are expected to grow 14% next year, and the NFL contract could pay off in spades — especially given Nike’s penchant for pushing the envelope with cutting-edge design.
As Nike is to the NFL, Under Armour (NYSE:UA) is trying to be to the collegiate ranks. In fact, along with Adidas (PINK:ADDYY), UA is fighting tooth and nail to outfit as many collegiate teams as possible.
Founder Kevin Plank attended the University of Maryland, so getting them on board was easy; it has a couple SEC members, University of South Carolina and Auburn, under wraps; and Texas Tech and Hawaii are on board, too.
Not that UA is thumbing its nose at the NFL. It’s the title sponsor of the NFL Combine, it has numerous player-specific sponsorship deals, and for those of us in Maryland, UA has a 10-year naming agreement for the Baltimore Ravens’ team practice facility.
UA completed a stock split last month as its shares continuously broke new higher ground, and the stock has continued to run after the split. All told, Under Armour has gained nearly 60% in 2012 — continuing a nearly 350% surge in the past three years.
Under Armour is projected to grow nearly 30% the next two years. And you’ll pay for that growth, too. Shares trade at nearly 60 times trailing earnings, more than 30 times forward earnings and a lofty price/earnings-to-growth ratio of 2. And there’s no dividend to tide you over during rocky patches.
But anyone who has read my previous articles will know that I am an unabashed Under Armour fan. With Plank at the helm of an innovative juggernaut and merchandising machine, UA shares should continue to thrive.
While Nike and Under Armour each have some stores of their own, they also rely on broader sports retailers to shoulder the load. One of the biggest ‘big uglies’ moving the ball forward? Foot Locker (NYSE:FL), and its 3,300-plus stores.
FL can outfit you from head to toe through its various store outlets, including Kids Foot Locker, Footaction and Champs outlets. The company carries NFL and NCAA gear across a wide spectrum of teams, and its stores are plastered with apparel from across the company.
In addition to the brick-and-mortar locations, consumers can order via FL’s biggest online segment, Eastbay, which caters to every sport and consumer level, including high school athletics. FL sank $159 million into capital expenditures in 2011 to bolster facilities and online efforts, and its direct-to-customer segment (which is mostly Eastbay) now accounts for $500 million in revenues and $45 million in profits.
Foot Locker also is focused on the investor. While dividend growth hasn’t been rampant, it has been there — FL hiked its dividend 9% this year on top of a 10% increase the year before, and now offers 18 cents quarterly for a 2.1% yield. Not too shabby for a manageable 15 P/E and anticipated earnings growth in the double digits.
FL just came through with a strong second quarter, boosting share prices to 45% year-to-date gains. Next up: A whack at back-to-school and football season.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities — but he loves his Under Armour Ravens shirt.
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