Nike (NKE), a seller of athletic footwear and athletic apparel worldwide, is expected to report FY 2014 second-quarter EPS of 58 cents on revenue of $6.44 billion, compared with a profit of 57 cents a share on revenue of $5.96 billion in the year-ago period. The company has a market cap of $69.39 billion. Nike has undergone a pullback from a year high of $80.26 on December 9, which now allows for a great entry price for this April expiration call option.
Nike closed trading yesterday at $78.50 a share, up 2.33% for the day. So far this year, the stock has appreciated 48.6%. Nike has experienced incredible stock growth throughout the bull market of 2013.
It is quite normal for Nike, a Dow Component stock, to exceed Wall Street’s consensus NKE earnings estimate, delivering a bullish EPS surprise in 13 of the last 16 quarters with two misses and one on-target result.
Analysts’ outlooks for the better-than-expected quarterly reports were exceeded by an average $0.05 with a range of $0.02 to $0.08, whilst the bearish surprises were $0.10 and $0.02.
Shares have performed well in the three-days surrounding NKE earnings announcements — in the last four years, NKE shares moved higher 10 times, averaging a gain of 4.98%.
There are some who estimate that Nike’s Q2 revenue would be $6.68 billion, bypassing the Street’s high-end view of $6.62 billion. If net margins remain constant quarter-over-quarter, then net income would be $747.7 million, which works out to $0.84 per share. However, don’t expect the number to be that strong; although, sales could be close, which will certainly help to boost Nike’s stock price and this recommended options trade.
Nike has continued to keep up the pace with a never-changing world environment and has provided many positive points that will surely help keep the upward momentum flowing. These areas are as follows:
- Nike is definitely not showing any deteriorating signs in the areas of inventory, currency costs or sales in China. Nike management formed the NIKE Trading Company to mitigate currency risk, and slow Chinese sales have been more than offset by excellent North American and Western Europe sales.
- Also, strong top line growth is expected to come from Nike’s key strategic initiatives that produce innovative products for meeting the latent demands of consumers. The company reported future orders growth of 12% (excluding currency changes), which will help it sustain growth.
- Apart from innovation, another factor that has propelled Nike’s growth despite the tough economic situation is its ability to execute efficient brand building strategies. Nike enjoys the leverage of a large portfolio of products which allows for risks and losses in a few categories and achieves a balanced overall result.
- Nike maintains great customer relations — a healthy connection with consumers is one of the major reasons behind sustained performance.
- Basketball and running products are top performing segments for Nike, and Michael Jordan and Kobe Bryant have added greatly to the company’s value. Maybe Andrew Wiggins could be the next value-added player! The signing of Andrew Wiggins would confirm that Nike remains the dominant sporting goods brand.
- Nike has a history of providing high value to its shareholders — during the first quarter of 2014; the company repurchased 8.4 million shares for $526 million. Up until now the company has repurchased $1.3 billion worth of stock, therefore expect a more aggressive share buyback in the coming quarters.
- An increase in EPS is expected as Nike makes progress towards reaching its revenue goal for fiscal year 2017.
Analysts Anticipate Upward Momentum
Susquehanna increased the price target for NKE from $65.00 to $70.00 in a research note issued to investors on Monday.
Other analyst reactions are as follows:
- Ned Davis Research upgraded shares of Nike from a neutral rating to a buy rating on Monday, November 11th.
- Morgan Stanley upgraded shares of Nike from an equal weight rating to an overweight rating and now has an $85.00 price target on the stock.
- HSBC raised their price target on shares of Nike from $67.00 to $85.00 and now have an overweight rating on the stock.
Nike is currently benefiting from increased consumer demand for its innovative products and is on track to achieve its revenue target by fiscal year 2017. The company is currently trading at the twelve months trailing P/E of 26.52, and its forward P/E for the year ending May 31, 2015 is at 22.20.
Thus, it is clearly visible that Nike is moving ahead with suitable strategies with respect to its fundamentals. Also, Nike’s incomparable ability to market its ideas and products will help it leverage its fundamental strength. Therefore, profit can be made from Nike’s progression by trading the following options call.
Options Trade: Buy the NKE Apr 2014 80.000 call (NKE140419C00080000) at or under $3.70, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $6.50.
As of this writing, Ian Harvey did not hold a position in any of the aforementioned securities. Visit his site, stock-options-made-easy.com, for a wealth of information that will help you benefit from the exciting and lucrative world of options trading.