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Like the score of an NBA game, Nike's stock price is rapidly closing on triple digits and it won't take a buzzer-beater to make it happen. Instead, Nike (NYSE:NKE) is using a combination of strong earnings, new product initiatives, and some flexing of brand power to wow investors with impressive results, creating the equivalent of a monster dunk for shareholders.

Six months ago, the stock was tumbling on news of the resignation by CEO William Perez. The stock fell through $80 in the days that followed, a typical reaction to unexpected changes in management. As we said at the time:

Uncertainty certainly justifies a negative market reaction, but it would be hasty (if not dead wrong) to assume this is an indication of underlying trouble at the world's largest athletic shoe company. There are some challenges facing the company, but there are many favorable trends that make this stock worthy of attention from investors who like an industry leader delivering double-digit growth and strong profitability.

At $99.20 currently, Nike has clearly assuaged investor concerns with two straight quarters of better-than-expected earnings and a favorable near-term outlook. The analyst consensus for earnings per share has jumped 16 cents for Fiscal Year 2007 ending in May and 12 cents for FY2008. EPS growth is projected at a 14% annual rate over the next five years. Goldman Sachs analyst Margaret Mager says Nike is poised for a reacceleration in growth, forecasting 18% growth next year according to a December 21 article in Forbes.

Nike is a preeminant global brand and that impressive corporate performance has happened before, during, and after the Perez era. In 2004, Nike founder Phil Knight relinquished the CEO title but kept an active role as Chairman. Nike brand co-President Mark Parker, a Nike veteran, took over the CEO position in June, so the core leadership of this championship team remains intact.

The departure of Perez apparently resulted from a clash of styles with Knight and the Nike culture, particularly on the marketing front. Perez came to Nike after a long career at the helm of consumer products giant SC Johnson. Perhaps he wasn't a good fit for Nike, but at least the Nike board recognized its mistake and responded in timely fashion. Appointing a long-time Nike insider like Parker, who's been with the company for 26 years, should give reassurance that this will continue to be the same company that investors have come to know and love over the past few decades. Parker is termed the "product visionary for the Nike Air franchise" and previously ran the multibillion dollar footwear and apparel business.

swooshThis is not just any consumer products company, after all. Nike revolutionized the athletic shoe business and is a case study in marketing genius whose brand and slogans transcend the threshold between the marketplace and popular culture. "Just Do It" and the Nike Swoosh are ubiquitous around the globe. The company has successfully grown from a running shoe innovator to a powerhouse in every major category of athletic footwear, not to mention sports apparel, equipment, and accessories.

Nike is expected to post sales of $16.2 billion this fiscal year ending in May and deliver earnings of $5.75/share, up from $5.39 a year earlier. The consensus for FY08 is revenue of $17.5 billion and EPS of $6.47. That's impressive growth for such a large company. Return on equity is a strong 21.6%, and net profit margins consistently in the neighborhood of 9% are rather attractive.

One concern is a heightened competitive threat from the recently merged powerhouse of Adidas-Solomon and Reebok. Nike has taken a few opportunities to assert its power as #1, though, such as offering a 450 million euro sponsorship deal to Germany's national soccer team--nearly five times what Adidas pays--when the current Adidas contract expires in 2010. Adidas has a history with the national team of its home country dating back more than five decades, so this is a classic shot across the bow from Nike.

michael jordanAnother challenge is weak demand in Europe, though sales appear to be stabilizing there. The outlook for sales growth in the US is solid and Asia is delivering very strong double-digit expansion. NKE is trading at 15.4 times forward earnings (the P/E is 18.9 using trailing earnings), and a Price/Sales Ratio of 1.6. The company pays a dividend of $1.48 annually for a yield of 1.50%.

Nike's turmoil at the top this year appears to be like changing the uniforms on the Jordan-era Bulls--it's still the same championship team with a culture of winning embedded throughout the organization. This is a mature company with one of the best brands in the world, and it's delivering impressive profit growth in the mid-teens. A decent dividend and reasonable valuation add to the list or reasons why Nike is a company that deserves some attention from investors.

NKE 1-yr chart:

NKE 1-yr chart

Source: The Long Case For Nike - 'Just Do It'