With the NBA finals in the bag, Nike Inc (NKE) heads into earnings next week with a confident swagger. The Cleveland Cavaliers won their first-ever championship crown, giving both LeBron James and Nike the fuel to shout down the naysayers. For Nike, and for NKE stock bulls, this couldn’t have come at a better time.
The athletic-shoe baron enters the earnings confessional after the close on Tuesday next week, and the strong performance in the NBA finals should help boost guidance — a welcome development after last quarter’s sales shortfall.
By the numbers, Nike is expected to post a fourth-quarter profit of 48 cents per share on revenue of $8.28 billion — up 6.5% year-over-year.
Expectations may be a bit higher among certain analysts, however, as EarningsWhisper.com reports a fourth-quarter whisper number of 53 cents per share.
Drilling down on the brokerage bunch, we find a sizeable bullish contingent. According to Thomson/First Call data, 26 of the 32 analysts following Nike stock rate the shares a buy or better, with six holds and no sell ratings. Even the 12-month consensus price target of $70.59 is pricing in respectable gains for NKE stock.
Options traders, meanwhile, are not so confident in NKE stock’s prospects. Currently, the July put/call open interest ratio arrives at 1.25, as puts easily outnumber calls among near-term options.
Furthermore, this ratio rises to 1.44 for the weekly July 1 series. This degree of pessimism from options traders seems a bit overblown for NKE.
Overall, weekly July 1 series implieds are pricing in a potential post-earnings move of about 6.5% for Nike stock. This places the upper bound near $57.20, while the lower bound lies at $50.22 from Friday’s close.
With NKE looking to bounce back from near-annual lows, a solid quarterly report next week could go a long way toward shaking loose a growing bearish contingent.
2 Trades for NKE Stock
Call Spread: For those traders willing to side with analysts ahead of Nike’s earnings report, a July $55/$57.50 bull call spread stands a fair chance of turning a profit. At last check, this spread was offered at $1.04, or $104 per pair of contracts. Breakeven lies at $56.04, while a maximum profit of $1.46, or $146 per pair of contracts, is possible if Nike stock closes at or above $57.50 when July options expire.
Put Sell: Alternately, if you are uncertain about the strength of Nike’s post-earnings rally, you could look into a put sell position. Along those lines, a weekly July 1 series $50 put sell might be a way to capitalize on NKE’s technical support. At last check, the July 1 series $50 put was bid at 29 cents, or $29 per contract.
The upside to this put sell strategy is that you keep the premium as long as Nike stock closes at or above $50 when July 1 options expire at the end of next week. The downside is that should NKE trade below $50 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
