Is Nike Still a Goddess of Victory?

With shares of Nike Inc. (NYSE:NKE) trading at around $61.68, is NKE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Nike has been given an OUTPERFORM rating here since December. However, have circumstances changed? Of course, the biggest conversation has been Under Armour (NYSE:UA). As has been stated in the past, it’s not about whether Nike or Under Armour will succeed. They will both succeed. Is it possible that Under Armour steals some market share? Yes. But it’s also possible that Nike steals it right back. Both management teams are strategic and aggressive in a timely manner. Under Armour is especially hungry to steal market share in the footwear space, but it won’t be as easy as many people anticipate. Nike has a deep innovation pipeline in footwear. Nike certainly isn’t going to sit around and wait for its biggest threat to execute its game plan without a counterattack. In addition to that deep pipeline in footwear, here are some other positives for Nike:

  • Margin expansion
  • Performing well again in China (for now)
  • Should perform well in Brazil thanks to World Cup (2014) and Olympics (2016)
  • Analysts love the stock: 11 Buy, 14 Hold, 0 Sell
  • UBS reiterated Buy rating and increased its price target to $68 from $63
  • Renewed pricing power
  • Consistent improvements in revenue on an annual basis
  • Consistent improvements in earnings on an annual basis
  • Improvements in revenue and earnings last quarter on year-over-year and sequential basis
  • Quality debt management
  • 1.40 dividend yield (competitors mentioned in this article don’t pay dividends)
  • Solid cash flow
  • Strong historical stock performance
  • Stock held up better than most in 2008/2009 (including UA and LULU)
EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Negatives:

  • Increased competition
  • Under Armour hungry to steal market share in footwear space
  • Increasing material and labor costs

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Nike, Under Armour, and Lululemon Athletica Inc. (NASDAQ:LULU). Nike has a market cap of $55.19 billion, Under Armour has a market cap of $5.85 billion, and Lululemon has a market cap of $11.08 billion.

NKE

UA

LULU

Trailing   P/E

24.05

48.79

40.14

Forward   P/E

20.16

30.31

29.01

Profit   Margin

9.22%

6.34%

19.74%

ROE

21.89%

16.07%

36.35%

Operating   Cash Flow

$2.64 Billion

$198.27 Million

 $280.11 Million

Dividend   Yield

1.40%

N/A

N/A

Short   Position

1.00%

19.20%

34.10%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong         

The debt-to-equity ratio for Nike is stronger than the industry average of 0.20. Nike’s debt management has been superb.

Debt-To-Equity

Cash

Long-Term Debt

NKE

0.03

$4.04 Billion

$321.00 Million

UA

0.07

$255.72 Million

$60.44 Million

LULU

0.00

$590.18 Million

$0

 

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals Are Strong       

Nike has outperformed Under Armour and Lululemon over the past year as well as year-to-date.

1 Month

Year-To-Date

1 Year

3 Year

NKE

3.59%

19.98%

13.05%

64.78%

UA

9.60%

14.28%

9.25%

218.60%

LULU

19.09%

-2.60%

0.75%

251.60%

 

At $61.68, Nike is trading above all its averages.

50-Day   SMA

56.76

100-Day   SMA

54.23

200-Day   SMA

50.88

 

E = Earnings Have Been Strong                             

Earnings have consistently improved since 2010. Revenue has improved over the past two years. It’s extremely rare to see a revenue hiccup in 2010 opposed to 2009, but that was the situation here. However, what’s most important is that Nike remained profitable during very difficult times in 2008 and 2009. This was a time when many companies were losing fortunes. This point is important because it indicates that Nike should be able to weather any future economic storms well.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

18.63

19.18

19.01

20.86

24.13

Diluted   EPS ($)

1.87

1.52

1.93

2.20

2.37

 

When we look at the previous quarter on a year-over-year basis, we see improvements in revenue and earnings on a year-over-year as well as sequential basis.

2/2012

5/2012

8/2012

11/2012

2/2013

Revenue   ($)in   billions

5.67

6.85

6.67

5.96

6.19

Diluted   EPS ($)

0.60

0.59

0.62

0.42

0.95

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Despite some hefty short positions, all three companies mentioned in this article are likely to succeed over the long haul. However, Nike would hold up best in a difficult economic environment due to its sheer size and product as well as geographic diversification.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

Nike is a winner. That won’t change. Management will find a way to quell competitive threats enough to make sure it will remain on top. The word Nike means “the goddess of victory.” Nike investors would consider that to be an accurate description of the company.

Nike isn’t invincible, but it would eventually recover from any market downturns. Nike is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

More Articles About:   , , , , ,  

More from The Cheat Sheet