September 21, 2023
Maverick Investor Guidance:
- The long-term Nike (NKE) chart is excessively bearish due to the current Wall Street ‘sky is falling’ bloated inventory narrative.
- Nike is considered a blue-chip stock with safe-haven characteristics during a recession, but the stock price is likely to decline further in any broad market pullback.
- Maverick Investors are not impacted by fluctuating trader sentiment or Wall Street narratives. When making investment decisions, we consider factors such as 10-year capital appreciation potential and dividend yield based on financial statement data.
- Mavericks should be comfortable adding to NKE positions presently and on all cyclical pullbacks for the foreseeable future based on our long-term four to five-year projections of greater than +100% growth in per-share revenue, cash flow, earnings, and dividends.
General Investor Outlook:
- Wall Street rates Nike’s stock as “overweight,” which we agree with. The positive analyst reviews give investors no reason to sell as long as broad market prices are strong.
- Wall Street has a bullish consensus among 29 analysts (21 Buy, 5 Hold, and 3 Sell) who have presented 12-month price targets for Nike in the last 3 months. Their average price target is $126.96, with a high forecast of $150.00 and a low forecast of $88.00. This consensus price target represents a +35.0% rise from the last price of $94.04.
Financial Strength:
- Value Line rates Nike’s financial strength at A++ and the top Safety grade of “1.”
The 1Q2024 earnings report is anticipated on September 28.
Notes from the 4Q2023 Nike Report
Nike, Inc. (NKE) concluded its fiscal year and 4Q2023 on a mixed note, with both positive and concerning aspects in its financial performance.
Here is an overview of key points:
Earnings and Sales:
- Nike’s earnings per share (EPS) experienced a decline of -14% in the year-over-year comparison despite a +16% increase in sales. The drop in earnings is attributed to promotional pricing strategies.
Inventory Management:
- Consumers have also tightened discretionary spending under the central bank’s Quantitative Tightening phase. Nike has grappled with bloated inventory levels during these times, hurting its earnings. However, there are signs of improvement, with inventory levels flattening compared to the previous year.
Profit Growth Potential:
- There is potential profit growth in FY2024, with an estimated EPS of $3.80, which would be an all-time high. This estimate, though, is slightly lower than previous expectations due to economic pressures and increased discounting.
Direct-to-Consumer (DTC) Push:
- Nike made a strategic move towards direct-to-consumer sales during the pandemic. While the DTC channel has performed well, challenges emerged due to economic conditions and rising logistics costs.
Future Sales Target:
- Nike is set to deliver merchandise to retailers like Macy’s and DSW, which is factored into a fiscal 2024 sales target of just below $54 billion.
Investment Timeliness:
- Although Nike shares are considered high-quality (Value Line Safety: 1), price points in the market have not been appealing. The stock presently holds a Value Line Average (3) designation for Timeliness, suggesting minimal capital appreciation potential. But this is a step up from the previous sub-par 4 rating for Timeliness.
Business Outlook:
- 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.
Next Year Outlook:
- The fiscal 2024 outlook is for record-level sales and earnings. As full-price selling returns to normalized levels, sales and EPS are expected to rise simultaneously, and excess inventories to drop.
- The current P/E at 29 is expected to fall to 21.
Additional Insights:
- Stephanie Link, Chief Investment Strategist at Hightower Advisors, is bullish on Nike’s direct-to-consumer business and expects it to improve margin in the coming quarters. She also believes that China’s reopening will benefit Nike’s financial performance.
- Incline Global Management LLC increased its position in Nike by 92.9% in the third quarter, indicating confidence in the company’s prospects.
Notes from the earlier 3Q2023 Nike Report
Earnings and Sales:
- Nike’s fiscal 2023 third-quarter results were strong, with sales exceeding expectations by nearly $1 billion. However, margins were impacted due to ongoing markdowns and inventory clearance.
Earnings Estimate:
- Despite the strong sales performance, earnings are expected to decline to $3.25 per share for the fiscal year, as margins will likely be further affected in the final quarter.
Business Outlook:
- The athleisure trend that emerged during the pandemic continues, benefiting Nike as the market leader in this segment. Growth in North America, Europe, and China is promising.
China Market Reopening:
- The removal of COVID restrictions in China is anticipated to boost Nike’s financial performance and stock price, considering the company’s significant presence in China.
Next Year Business Outlook:
- The fiscal 2024 outlook is for record-level sales and earnings, highlighting Nike’s market dominance. When full-price selling normalizes, sales and EPS are expected to rise in tandem.
10-Year chart:
