Nike Inc (NYSE: NKE) has struggled with a challenging North American athletic apparel market in recent quarters. However, analysts say the company may be a week away from showing investors that it has finally righted the ship, and expectations are high for a big quarter from Nike.
Nike has reported shrinking North American revenue in each of the past three quarters and declining gross margins for eight consecutive quarters. According to Stifel analyst Jim Duffy, both of those losing streaks will come to an end when Nike reports fiscal fourth-quarter earnings next week.
[See: Finish First With Athletic Apparel Stocks.]
“Our North America checks show healthy consumer spending, enduring demand for athletic footwear and apparel product, and encouraging indications on consumer appetite for new NIKE platforms,” Duffy says.
NKE stock currently trades at a premium earnings multiple, but Duffy says Nike’s unique positioning as the global leader in athletic apparel market provides the company with long-term secular growth tailwinds that should help support the stock.
“With demonstration of a return to a healthier business in North America, we believe the market will begin to look out to [fiscal 2021] earnings power to assess valuation and the premium multiple remains durable,” Duffy says.
Stifel is calling for 6 percent revenue growth from Nike in the fiscal fourth quarter, including 1 percent growth in North America and 20 percent growth in Greater China. In addition, Duffy predicts gross margins will expand for the first time in two years, climbing 0.1 percent to 44.2 percent.
With Nike stock up 19 percent year-to-date, Duffy isn’t the only one optimistic about Nike’s outlook. According to Bank of America analyst Robert Ohmes, active fund managers have been aggressively buying Nike stock, a phenomenon that has historically been a red flag for investors.
Bank of America’s latest fund data suggests active fund managers are more overweight Nike than at any point in the past two years and have increased their exposure for four consecutive months.
“After the previous peak in July 2016, we saw seven consecutive months of outflows,” Ohmes says.
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He also says NKE stock is currently trading at roughly the same price-earnings ratio it had when the company was reporting revenue growth above 20 percent, suggesting the stock is relatively expensive compared to its historical valuation.
Stifel has a “buy” rating and $87 price target for Nike. Bank of America has an “underperform” rating and $50 target for NKE stock.
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Nike Inc (NKE) Stock Expectations Are Creeping Higher originally appeared on usnews.com
