Athletics apparel icon Nike Inc (NKE) has been one of the best performing mega-cap stocks of this bull market, rising roughly 700% from its 2009 low into a high set in December. Since then, shares have fallen out of a three-month topping pattern to retest support at its 200-day moving average — a level that has repeatedly provided support, and presented a great entry point, since 2012.
Click to Enlarge Last week, I recommended Edge Pro subscribers get long on the idea via the Feb $60 NKE calls that are now carrying a gain of 153%. But there is room for much more.
Here’s why.
Nike Fundamentals
Back in December, Nike reported better-than-expected earnings of 90 cents per share vs. the 85 cents analysts are expecting. Worldwide future orders grew 15% over last year (20% when excluding the drag from the stronger dollar). Profit margins expanded to 45,6% from 45,1%.
Results of North America and China, the two most important consumer markets in a time of economic turmoil in both, were downright impressive. North American sales increased 9% over last year (or 10% ex-currency). China sales increased 24% (or 28% ex-currency).
In the earnings call, management highlighted the likely boost from the 2016 Summer Olympics in Brazil as well as the European Championships.
Back in November, Nike approved a $12 billion share buyback (14% of market capitalization), approved a 2-for-1 stock split and increased the dividend 14%.
Looking ahead, Deutsche Bank raised its price target on Nike stock to $75 helped in part by strong growth in athletic footwear sales. Through the end of the Christmas shopping season, DB’s channel checks showed a 12.6% year-over-year increase in sales, with Nike posting a near 19% increase.
Argus also recently raised its price target on Nike stock, driven by worldwide store growth and the introduction of new footwear models resulting in increased market share. It also expects further margin expansion thanks to recent price increases, moderating input costs and a fading drag from the stronger dollar.
Although competition is fierce, Argus believes that NKE will continue to outperform thanks to its strong brand image, innovative products, large scale and rapid growth in emerging market economies.
We will know more when Nike next releases results on March 17. Analysts are looking for earnings of 49 cents on revenues of $8.2 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
