By Todd McDonald, analyst
Nike (NKE) is slated to report Q4 2013 earnings after the close of trading on Thursday, June 28, with a conference call scheduled for 5:00 p.m. ET. The actual results are typically available via a press release at 4:15 p.m.
Outliers and Strategy
- Earnings Per Share: The value for this measure typically compares with consensus estimates. Earnings per share estimates range from $0.69 to $0.80, with consensus coming in at the high end, at $0.75 (source: Yahoo Finance). Nike has beat consensus estimates for earnings per share in seven of the past eight quarters.
- Revenue: Revenues are expected to be in the range of $6.52 billion to $6.85 billion, with the consensus estimate at $6.64 billion.
- Futures Orders: In the third-quarter release, Nike indicated that worldwide futures orders, in constant currency (scheduled for delivery the quarter March through June 2013), were 6% higher than the same quarter last year, or $9.9 billion. According to a post on Barrons' blog, Canaccord Genuity is calling for futures orders growth of 10%, while Stifel Nicolaus is projecting 9% growth.
- Implied Volatility: Nike's shares have had average absolute moves of 6.17% in the last two years after earnings releases. Options premiums are pricing in a 5% move.
- Valuation: Nike currently trades at 20.16x forward EPS, a steep discount to its competitors UnderArmor (UA) at 28.45x and Lululemon (LULU) at 37.50x.
Recent dollar strength is likely to have a negative impact on Nike's bottom line, according to a Forbes.com article. Approximately 60% of Nike's revenues come from outside North America.
- June 20: Brand President Charlie Denson, a 34-year Nike veteran, plans to retire in January 2014. The firm also announced other management changes, including Eric Sprunk's promotion to COO.
- May 7: According to a post on Benzinga.com, JPMorgan raised its price target from $64 to $70, citing an upcoming batch of potential catalysts including Chinese stabilization and the company's new Flyknit line. The firm envisions three to five years of mid-teens earnings growth and maintains its Overweight rating.
- April 22: According to a post on StreetInsider.com, UBS reiterated its Buy rating while increasing the firm's price target to $68 from $63. The increase in price target is a result of meetings with management that increased confidence for improving gross margins, and the potential for earnings per share growth over 20%.
Nike's shares have outperformed the broader market gauges in 2013, rising approximately 18% vs. the S&P 500's 13%. However, recent price action has been negative, with the stock losing its 50-day SMA and violating an upward trend beginning from the mid-November 2012 lows. If earnings disappoint, look for initial support at the lows of the trading session following the Q3 earnings release near $58. Should earnings surprise to the upside, potential resistance levels include the 50-day SMA near $62.50 followed by recent highs near $66.
It is worth noting that currency headwinds and slower-than-expected Chinese growth could have negative implications for the upcoming report. Foreign revenue growth is a key component to continuation of the current growth rate. However, after a nearly 10% decline from recent highs, these concerns may be priced in. Look for numbers for EPS, revenues, and futures orders above the midpoint of analyst estimates to push shares higher after earnings are released.