November 7, 2023, $109.36
- NIKE is a global company specializing in footwear, apparel, equipment, and accessories, distributed through retail accounts, NIKE-owned stores, the Internet, and independent distributors. Its offerings span six categories, including running, basketball, the Jordan brand, football, training, and sportswear, with a separate product line for kids. The company employs approximately 79,100 individuals, including part-time workers.
- Short-term technical buy/sell recommendation: BUY, with Triple-Top Breakout Nov. 3
- Long-term portfolio recommendation: BUY ON EVERY SHORT-TERM PULLBACK
- Nike’s world-leading position in the footwear and accessories market, growth in North America and Europe, and emerging demand in China indicate a positive outlook. Athleisure, which refers to a fashion trend characterized by athletic clothing that is both comfortable and aesthetically appealing) continues to thrive, and Nike is well-positioned to benefit from it.
Consideration for Maverick Portfolio:
- Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
- Appropriate for risk profile score of 22-29. The Moderate Investor seeks to balance caution and ambition, aiming for reasonable growth while managing risk. The Maverick MODERATE GROWTH portfolio is designed to maintain a stable yet potentially rewarding financial strategy by including a mix of conservative and moderately aggressive Dow 30 stocks.
- Appropriate for risk profile score of 30-35. The Moderately Aggressive Investor is willing to take on higher risk for the potential of higher returns. The Maverick DYNAMIC GROWTH portfolio includes a higher allocation of high-growth-oriented Dow 30 stocks to align with this risk-tolerant approach.
- Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Moderate Buy
- 28 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 18 Buy, 10 Hold, and zero Sell. (from TipRanks)
- Based on 18 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $118.48, with a high forecast of $150.00 and a low forecast of $88.00. The average price target represents a +8.5% change from the last price of $109.36. (from TipRanks)
- Dividend Yield: $0.34 per share paid quarterly to yield 1.27%.
- Dividend growth for 11 years. (from TipRanks)
- Technical Sentiment (based on Technical Indicators and Moving Averages):
- Investing.com = Daily (STRONG BUY) and Weekly (BUY)
- TipRanks = Daily (BUY) and Weekly (NEUTRAL)
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 1 of 5
- Market Timing: 1 of 5
- Technical Rank: 4 of 5
- Beta: 1.15
- Stock’s Price Stability: 65/100
- Price Growth Persistence: 80/100
- Earnings Predictability: 60/100
- Average Annual PE: 20
- Average Annual Sales Growth in the past 5 years: +8.0%
- Average Annual Sales Growth for the next 5 years: +8.0%
- Average Annual Cash Flow Growth in the past 5 years: +7.5%
- Average Annual Cash Flow Growth for the next 5 years: +16.0%
- Average Annual Earnings Growth in the past 5 years: +8.5%
- Average Annual Earnings Growth for the next 5 years: +17.0%
- Average Annual Dividend Growth in the past 5 years: +11.5%
- Average Annual Dividend Growth next 5 years: +12.0%
- Projected Average Annual Dividend Yield in 3 to 5 years: +1.4%
- 10-year Average Annual Total Return: +12.21% (through Nov 7, 2023)
- 2020: $1.85
- 2021: $3.56
- 2022: $3.75
- 2023: $3.23
- 2024: e$3.75 (from Value Line Quarterly Report)
- Average Annual PE: 20 (VL Quarterly Report)
- PEG Ratio: 2.31 (FinViz)
- Beta: 1.09 (FinViz)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
1Q2024 (Oct. 14 report for the quarter ending August 2023)
- Q1 2024 revenues reached $12.9 billion, up 2% compared to the previous year.
- NIKE Direct revenues were $5.4 billion, growing 6% year-over-year, with growth in all regions.
- NIKE Brand Digital sales increased 2%.
- Wholesale revenues were $7.0 billion, flat compared to the previous year on a reported basis and up 1% on a currency-neutral basis.
- Gross margin decreased slightly to 44.2%.
- Diluted earnings per share for the quarter was $0.94, up 1%.
- NIKE shares have declined to below $100 this year, with mixed performance in North America but improved results in China.
- Expectations of a 16% increase in earnings per share for fiscal 2024.
- Inventory reduced by 10% YoY, suggesting potential for more full-price sales.
- Positive outlook for digital sales as the year progresses, contingent on a more favorable macroeconomic environment.
- NIKE’s performance in China has improved despite earlier challenges.
- The stock is at the top of the Timeliness Ranking System, but long-term appreciation potential is below average, and the dividend yield is lower than the Value Line median.
4Q2023 (for the quarter ending May 2023)
- In 4Q 2023, NIKE reported a 14% decline in earnings despite a 16% increase in sales year-over-year.
- The lower earnings were attributed to promotional pricing.
- NIKE had been dealing with bloated inventory but saw an improvement, with the year-end inventory almost flat with the previous year.
- Earnings are expected to reach $3.80 per share in fiscal 2024, an all-time high, though it’s a quarter lower than anticipated three months earlier.
- Wholesale relationships are being restored as consumer spending tightens and consumer preferences influence the Direct channel’s performance.
- NIKE’s Direct channel performed well, with receipts up 15% YoY to $5.5 billion.
- NIKE is set to deliver merchandise to Macy’s and DSW in October, contributing to a sales target of just below $54 billion for fiscal 2024.
- NIKE’s shares, despite a 10% reduction in price since late April, are not particularly appealing at recent price levels.
- The stock is assigned a Below Average (4) Timeliness designation, with subpar capital appreciation potential for three to five years and a lacking yield.
3Q2023 (for the quarter ending February 2023)
- NIKE reported strong fiscal third-quarter results, with sales nearly $1 billion ahead of estimates.
- Ongoing markdowns and discounting to clear inventory boosted sales, but margins and profitability were down year-over-year.
- Earnings reached $0.79 per share, slightly better than expected.
- Margins are expected to take a larger hit in the final quarter as the company clears out more inventory for a fresh start in the next fiscal year.
- Full-year earnings are expected to slide to $3.25 per share, even as the sales target climbs to nearly $51 billion.
- The athleisure trend thrives, driven by hybrid work setups and casual fashion.
- Strong growth in North America, firm demand in Europe, and emerging demand in China are positive signs.
- NIKE is introducing a fiscal 2024 outlook for record-level sales and earnings as the company holds a significant share of the thriving market.
- These shares are considered timely, but long-term readings are subpar, and the dividend yield is slightly below average.
The 3-to-5-year Operational and Financial Outlook:
- The 3-to-5-year outlook indicates strong growth in revenue and earnings.
Company SWOT Analysis
Internal Strategic Factors:
- Strong Brand Awareness and Value: Nike is a globally recognized brand with a unique name and iconic swoosh symbol. It ranks 10th in Interbrand’s global brand ranking, with a brand value of $50.2 billion.
- Huge Customer Base: Nike has millions of loyal customers worldwide, contributing to a market capitalization of $193 billion as of April 2023.
- Sustainability Focus: Nike aims to address environmental issues and contribute to solutions under CEO Mark Parker’s leadership.
- Iconic Relationships: Long-term partnerships, such as the one with Michael Jordan, have resulted in successful products like “Air Jordan 1 Shoes.”
- Side Brands: Nike’s side brands, including Converse and Hurley, have contributed to its enduring success.
- Low Manufacturing Costs: Nike outsources manufacturing to countries with favorable wage structures, keeping manufacturing costs low.
- In-house Professionals: Nike’s dedicated team of professionals conducts thorough research for product design.
- Superior Marketing: Nike invests heavily in marketing, with successful social media campaigns and endorsements.
- Black Community Support: Nike’s “Don’t Do It” campaign supports Black communities against racism.
- High Market Share: Nike captures 39% of the global athletic footwear market and 13% of the athletic apparel market.
- Poor Labor Conditions in Foreign Countries: Nike has faced criticism for poor labor conditions, including forced labor, child labor, low wages, and unsafe working conditions in foreign countries.
- Retailers Have a Stronger Hold: Nike’s dependence on retailers for 65% of its product sales limits its ability to control pricing.
- Pending Debts: Despite apparent prosperity in income statements, Nike has a growing long-term debt, raising financial concerns.
- Lawsuits: Nike has faced discrimination and equal pay lawsuits, impacting its image.
- Lack of Diversification: Overreliance on sporting apparel leaves Nike vulnerable to market changes, such as the pandemic’s impact on sports events.
- Contradicting Strategies: Nike’s “Move to Zero” sustainability initiative appears inconsistent with its emphasis on innovation over sustainability.
- Dependency on North America: Despite global reach, Nike relies heavily on the U.S. market, which exposes it to market shocks and economic downturns.
- Sexual Harassment: Reports of sexual harassment and a toxic work environment have tarnished Nike’s image.
- Controversial Labor Practices: Historical unethical labor practices still affect Nike’s reputation.
- Worrying Financial Indicators: Nike’s increasing long-term debt and declining profit margins raise concerns.
- Unfavorable Relationship With Retailers: Nike’s reliance on third-party retailers can lead to lower profit margins and issues with counterfeit products.
- Revenue Over-dependence on Footwear: Over 60% of Nike’s revenue comes from footwear, leaving it vulnerable to product-related shocks.
- Cultivation of Luxury Brand Image: Nike’s shift towards luxury brand collaborations may alienate its traditional customer base.
- Reduced Quality Control: Outsourcing manufacturing can reduce control over product quality and lead to counterfeit products in the market.
External Strategic Factors:
- Emerging Markets: Nike sees opportunities in emerging markets like India, China, and Brazil.
- Innovative Products: Nike focuses on innovation, particularly in technology and health-related products.
- Efficient Integration: Nike aims to improve supply chain efficiency by considering the acquisition of manufacturers.
- Cutting Ties with Big Retailers: Nike is ending partnerships with large multi-brand retailers to enhance product positioning and customer experience.
- Acquired Artificial Intelligence Start-up: Nike acquired Celect, a predictive analytics platform, to improve online sales and predict customer behavior.
- Merges with the Metaverse: Nike is exploring the virtual world through acquisitions like RTFKT to market digital and physical products.
- Exiting From Wholesale Distribution: Nike is moving away from wholesale distribution in the U.S. to increase profit margins and control the customer experience.
- End Use of Kangaroo Leather: Nike is discontinuing the use of kangaroo leather in its products in favor of synthetic materials.
- Consumer Direct Strategy: Nike is shifting towards digital business and online sales to adapt to changing consumer behavior.
- Investing in New Markets: Nike is expanding into new markets, including women’s sportswear, to diversify its product range and reduce reliance on North America.
- Increasing Their Product Range: Nike is exploring sports technology and promoting a wider range of products.
- Tapping Into the Future: Nike is using artificial intelligence to improve e-commerce and investing in the Metaverse.
- Introducing Anti-counterfeiting Technology: Nike is taking steps to combat counterfeit products through collaborations and reporting platforms.
- Investing in Sustainability: Nike incorporates sustainable materials and recycling initiatives into its products.
- Counterfeit Products: Counterfeit products can harm Nike’s reputation and revenue. They are a global problem, with some merchants and retailers selling low-quality fake Nike products at lower prices, potentially tarnishing the brand’s image.
- Increased Competitive Pressure: While Nike dominates the athletic industry, competition from emerging brands poses a threat. To stay competitive, Nike invests heavily in marketing and must focus on designing innovative products tailored to athletes’ needs.
- Marketing Budget Pressure: Rivals like Under Armour, Adidas, and Lululemon are increasing their marketing and advertising spending, intensifying the competition for Nike.
- Currency Foreign Exchange Risks: Nike is affected by fluctuating foreign exchange rates as it operates globally, which can impact its revenue since it reports earnings in U.S. dollars.
- Patent Disputes: Nike has been involved in patent disputes, particularly with Adidas, which can have public relations consequences and legal costs.
- Economic Uncertainty: Like any company, Nike is vulnerable to the negative effects of a global recession, which can lead to declining sales.
- Trade Tensions: Nike depends on markets in both China and the U.S., and trade tensions between these two countries could threaten a significant portion of its sales.
- Risk to Kangaroo Population: Nike has faced accusations of endangering the kangaroo population due to its use of kangaroo skin in products. This has prompted calls for alternative, plant-based materials.
- Retail and Warehouse Thefts: Nike experiences theft throughout its supply chain, which is a costly problem. Retail theft is a significant issue in the United States, with substantial financial implications.
- Patent Conflict towards Adidas Primeknit Shoes: Nike has filed a complaint against Adidas, alleging patent infringement related to shoe technology. This dispute has legal and reputation implications.
- Competition From Other Sports Brands: While Nike is a dominant player, competitors like Adidas have been growing faster and making celebrity endorsements, challenging Nike’s market position.
- High Profile Patent Disputes: Nike has been involved in legal battles with Adidas over patent infringement, leading to a lasting impact on their reputations.
- International Trade Tensions: As an international brand, Nike is exposed to trade tensions and agreements, especially between the U.S. and China, which can affect its sales.
- Animal Abuse Scandal: Nike has faced criticism for using kangaroo skin in its products, contributing to the decline in the kangaroo population. Animal rights advocates urge the use of alternative materials.
- Competitors’ Advertising Investments: Nike’s competitors, like Adidas, are investing heavily in advertising, which concerns Nike’s market share despite its strong branding.
FinViz Snapshot: https://finviz.com/screener.ashx?v=121&t=NKE
10-Year Historical Price Chart:
Point & Figure Chart:
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