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Should You Buy Nike (NKE) Stock Ahead of Q4 Earnings?

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Nike (NKE - Free Report) is set to report its fourth-quarter and fiscal 2018 financial results after market close on Thursday. So let’s see if the sportswear power’s stock might be worth buying ahead of its earnings release and if Nike looks poised to rebound from its recent North American sales downturn.

Overview

Nike has faced challenges in its domestic market over the last year, as it faces increased competition from rival Adidas (ADDYY - Free Report) as well as Lululemon (LULU - Free Report) and other companies with the sportswear market shifting further toward athleisure. Meanwhile, the company has also been negatively impacted by shifting retail habits that have seen the likes of Dick’s Sporting Good (DKS - Free Report) , Foot Locker (FL - Free Report) , and Finish Line all suffer while e-commerce giants such as Amazon (AMZN - Free Report) continue to soar.

Nike saw its North American sales slip by 6% last quarter to $3.57 billion. The company’s North American revenues also fell by 5% in the second quarter and 3% in Q1. Luckily for investors and Nike, the company has seen its sales expand internationally.

However, North America still accounted for roughly 40% of Nike’s overall revenues in Q3, so investors will be pleased to note that Nike executives said as recently as March that the company expects North American sales to stabilize. This would also signal that Nike has been successful in its direct-to-consumer push as it adapts to the e-commerce age through various mobile app stores and online selling initiatives.

Now that investors have a good sense of what’s going on, let’s jump into some of Nike’s estimates and fundamentals to see if the stock looks like a buy ahead of Q4 earnings.

Growth Outlook

Our current Zacks Consensus Estimates are calling for Nike’s fiscal Q4 revenues to climb by 8.25% to $9.39 billion. Meanwhile, Nike’s quarterly earnings are projected to pop by 6.67% to $0.64 per share. Investors also need to know a little bit more on the estimates front, and for that, we can turn to our exclusive non-financial metrics consensus estimate file.

The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.

Based on our latest consensus estimates, analysts expect Nike’s North American revenues to hit $3.76 billion, which would mark a marginal gain from the $3.75 billion it reported in the year-ago period, which is a good sign for all the reasons we already mentioned. One other important figure to keep an eye on is overall Footwear revenues, which are projected to climb by roughly 10.5% to $6.05 billion.

Earnings Revisions

Moving on, investors should take a look at Nike’s most recent earnings revision trends. Nike has earned two upward earnings estimate revisions for the full year, with complete agreement to the upside, both within the last 30 days. During this same timeframe, Nike has also received one upward revision for Q4, against no downward changes.

Investors should note that Nike’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $0.63 per share, which is 1 cent worse than our current consensus estimate. But Nike has a stellar management team that hasn’t seen them miss our earnings estimates since 2012.

Price Movement/ Valuation

Lastly, investors need to understand how Nike stock has performed recently. Shares of Nike have soared 37% over the last year and have climbed 9.7% over the last three months, which tops the S&P 500’s 4.5% upward movement. Yet, Nike has seen its stock price slip slightly during the last month to sit just a couple of dollars below its 52-week high of $75.91 per share.

Meanwhile, Nike’s recent performance has caused Nike’s valuation picture to look a bit stretched at the moment. Nike stock is currently trading at 27X forward 12-month Zacks Consensus EPS estimates, which marks a significant premium compared to its industry’s 20.7X—which includes the likes of Ralph Lauren (RL - Free Report) , Michael Kors (KORS - Free Report) , and Columbia Sportswear (COLM - Free Report) .

For further reference, Nike stock has traded as high as 28.5X and as low as 20.7X over the last year, with a one-year median of 25.5X. Therefore, Nike is resting just below its year-long high and above its peers, but it is also worth noting that Nike has traded at a premium compared to its industry over the last five years. 

Bottom Line

With that said, Nike is currently a Zacks Rank #3 (Hold) and sports an “A” grade for both Growth and Momentum in our Style Scores system. The company is also expected to grow both its top and bottom lines and end its streak of declining North American sales. Therefore, investors might want to consider Nike stock at the moment.

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