Nike Inc (NKE) will step up to the earnings starting line next week to release its second-quarter earnings report after the close of trading on Tuesday.
Nike has bested Wall Street’s expectations in every quarter for the past three years, and once again, the sportswear giant is on track to top the Street’s expectations. With NKE stock hovering just above technical support, next week’s report could finally help the shares break out of their recent doldrums.
For the record, Nike’s second-quarter earnings are expected to rise 16.2% year over year to 86 cents per share from 74 cents per share. Revenue is seen adding 5.8% to $7.81 billion on the quarter. Expectations may be a bit higher among some analysts, however, as NKE has a whisper number of 89 cents per share.
Click to Enlarge Technically, Nike stock price has put in another solid performance this year. Year-to-date, the stock has added more than 34%, with NKE enjoying solid support from its 10-week and 20-week moving averages.
More recently, broad market turmoil has stalled NKE’s advance, with the shares spending the past couple of weeks consolidating in the $125-$135 region.
With NKE repeatedly challenging overhead resistance despite broader market issues, next week’s earnings report may be just the catalyst NKE stock needs to breakout to the upside.
On the sentiment front, analysts are quite bullish on Nike’s prospects. Specifically, Thomson First Call data reveals that 25 of the 29 analysts following the shares rate them a “buy” or better. That said, there is wiggle room for more bullish coverage, as the 12-month consensus price-target of $140 represents a meager premium of just 7.5% to yesterday’s close.
Options traders are considerably more cautious, however. For instance, the December-January ratio arrives at a bearish reading of 1.50, with puts easily outnumbering calls among options set to expire within the next two months. This ratio dips slightly for the weekly Dec. 24 series, but still arrives at an elevated 1.37.
Overall, weekly Dec. 24 series implieds are pricing in a potential post earnings move of about 5.6% for NKE stock. This places the upper bound near $137.27, while the lower bound lies at $122.73. A post-earnings rally could help NKE stock eclipse residence at $135, thus leading to potential longer-term gains, while a decline could send the shares down for a re-test of support near $120.
2 Trades for Nike Stock
Call Spread: For those traders willing to side with analysts ahead of Nike’s earnings report, a Jan 2016 $130/$135 bull call spread stands a fair change of turning a profit. At last check, this spread was offered at $2.12, or $212 per pair of contracts. Breakeven lies at $132.12, while a maximum profit of $2.88, or $288, is possible if NKE closes at or above $135 when January options expire.
Put Sell: Alternately, if the current market headwinds have you worried, you could look into a put sell position. Along those lines, a weekly Dec $120 put sell might be a way to capitalize on NKE’s technical support. At last check, the Dec $120 put was bid at 61 cents, or $61 per contract.
The upside to this put sell strategy is that you keep the premium as long as NKE stock closes at or above $120 when December options expire at the end of next week. The downside is that should NKE trade below $120 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $120 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
