By Guy Hananya
Nike (NKE) is slated to report 4Q 2012 earnings after the close of trading on Thursday, June 28 with a conference call anticipated at 5:00 p.m. EST. The actual results are typically available via press release at 4:15 p.m. EST. Nike faces stiff competition, a weak macroeconomic environment, as well as a strong Dollar, which will likely weigh on its upcoming results and future performance.
Outliers & Strategy
Key measures:
- Earnings Per Share: The value for this measure typically compares with consensus estimates. Earnings Per Share estimates ranging from $1.24 to $1.43, with consensus coming in at the high end of estimates at $1.37 (Source: Yahoo! Finance). Nike has beat consensus estimates by an average of 6% over the past four quarters.
- Revenue: Revenues are expected to be in the range of $6.39 bln to $6.60 bln, bracketing the current consensus of $6.52 bln. (Source: Yahoo! Finance).
- Future Orders: Last quarter Nike reported Future Orders, scheduled for delivery from March through July 2012, to increase by 15% compared to the prior year. This positive outlook is attributed to the upcoming London Summer Olympics, as well as the European Soccer championships. Future orders a critical measure for Nike are seen as a precursor for the next 3 months, merchandise scheduled to be delivered from June to November 2012.
- Given the recent pullback, Nike is now trading at just 20.5x earnings, a steep discount to its competitors Under Armor (UA) (51.14x) and Lululemon Athletica (LULU) (47.04x), also below the industry average of 25.66x.
Recent News
- 06/25: Jefferies maintained its Buy rating on Nike but cut its price target from $130 to $115, citing European headwinds and high inventory levels, according to a report on Benzinga.com.
- 06/22: Sterne Agee reiterated its Buy rating and $125 price target for Nike. The firm cited a robust pipeline for the positive outlook, coupled with products, according to a report on Benzinga.com.
- 06/20: Nikes Head of U.K. PR and Communications, Ryan Greenwood, indicated that the Olympic Games give Nike the chance to build a buzz and showcase its new products, according to a report on Reuters.com.
- 05/31: Nike announced its intention to divest two of its wholly-owned affiliate brands, Cole Haan and Umbro. This will allow Nike to focus on driving growth in its NIKE, Jordan, Converse, and Hurley brands.
- 05/14: Nike declared a quarterly cash dividend of $0.36 per share, resulting in a yield of 1.4%.
Technical Review
Nike shares are down 7.5% in the month of June, recently breaking below support at $99, en route to its lowest level since late December, 2011. Should earnings disappoint, look for further downside risk to long-term support near $95. Concurrent with this move downward, the Relative Strength Index tumbled toward 30 - signaling the shares are in oversold territory. Should earnings surprise to the upside, look for near term resistance at the 200 day SMA near $100. (Chart courtesy of StockCharts.com).
(Click to enlarge)
Summary
Nike shares have been hit hard due to shrinking profit margins, significant exposure to Europe and China, high inventory levels, currency headwinds, and a weak macroeconomic backdrop. Given the recent negativity, a positive 4Q release on Thursday could trigger a turnaround in Nike stock. Furthermore, a robust product pipeline as well as the upcoming London Olympics could reverse the weak sentiment surrounding Nike. With shares trading at a discount to its competitors and exhibiting a level that are technically oversold readings, Nike is positioned for a turnaround if earnings were to exceed reduced expectations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
