Nike, Inc. (NKE) is known for its athletic shoes and apparel. it has retained the top spot in both favorite apparel and footwear brands within its industry for many years. The company’s ability to resonate with both young and old shoppers is reflective of its large-scale online sales, which have boomed during the COVID-19 pandemic as its consumers turned to its website and app to buy sneakers and workout apparel in lieu of purchasing them from brick-and-mortar outlets.
NKE’s earnings and revenue topped expectations in the second quarter of its fiscal 2021 due to substantial growth in digital business. The company’s digital sales grew 80% on a currency-neutral basis, with triple-digit growth in North America and strong double-digit increases in EMEA, Greater China and APLA. Also, its direct sales surged 32% on a reported basis, with double-digit growth across all regions. NKE’s core strategy of engaging with consumers directly through the activity app has led to the increased online purchasing.
NKE’s strong digital marketplace and its strategic vision of Consumer Direct Acceleration have helped it to gain 36.5% over the past year. This impressive performance, combined with several other factors, has helped NKE earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates NKE:
Trade Grade: A
NKE is currently trading above its 50-day and 200-day moving averages of $131.48 and $106.63, respectively, indicating that the stock is in an uptrend. Also, the stock has gained 19.7%, over the past three months, reflecting solid short-term bullishness.
NKE’s revenue has increased 9% year-over-year to $11.20 billion in the fiscal second quarter ended November 30, 2020. This revenue increase is attributable primarily to strong double-digit growth in direct sales as well as growth in Sportswear. Net income rose 12% from the prior-year quarter to $1.30 billion, while EPS grew 13% from the year-ago value to $0.80. Its gross profit increased 7% year-over year to $4.85 billion over this period.
Earlier this year, NKE announced senior leadership changes to support Consumer Direct Acceleration. This strategic leadership change will allow the company to accelerate its digital transformation across all operating segments and enhance client experience.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, NKE is well positioned. The stock is currently trading just 2.7% below its 52-week high of $141.14, which it hit on December 18.
The company’s net revenue grew at a CAGR of 4.1% over the past five years. This can be attributed to the company’s compelling innovative products and global brand momentum coupled with its digital acceleration.
Peer Grade: A
NKE is currently ranked #1 of 34 stocks in the Athletics & Recreation industry. Other popular stocks in this group are Callaway Golf Company (ELY), Acushnet Holdings Corp. (GOLF) and Fitbit, Inc. (FIT).
FIT, ELY, and GOLF have gained 9.7%, 18.8%, and 26.9% over the past year, respectively. This compares to NKE’s 36.5% returns in the period.
Industry Rank: A
The Athletics & Recreation group is ranked #8 of the 123 StockNews.com industries. The companies in this industry produce and sell athletic footwear, apparel, equipment, boats, hunting equipment, and accessories for men, women, and kids worldwide through retail outlets and online platforms.
The athletic apparel industry has benefited from a robust online business that surged as consumers moved online while stores were closed for months. As more customers rely on at-home workouts during the pandemic and opt for comfortable athletic wear over other apparels, the industry should keep benefitting.
Overall POWR Rating: A (Strong Buy)
NKE is rated “Strong Buy” due to its impressive financials, short and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.
Based on the factors discussed here, NKE is well positioned to appreciate in the coming months despite gaining 36.5% over the past year. Because the company has reported impressive revenue and earnings growth, driven by triple-digit growth online in North America and strong demand for its sneakers and workout apparel from Chinese consumers, it may be wise to bet on the stock right now.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for NKE. It has an average broker rating of 1.44, indicating favorable analyst sentiment. Of 33 Wall Street analysts that rated the stock, 11 rated it a “Strong Buy.” The consensus EPS estimate of $0.75 for the current quarter ending February 28, 2021 indicates a 41.5% improvement year-over-year. The consensus revenue estimate of $10.80 billion for the current quarter indicates a 6.9% increase from the same period last year.
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NKE shares were trading at $143.28 per share on Monday afternoon, up $6.00 (+4.37%). Year-to-date, NKE has gained 42.77%, versus a 15.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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