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Should You Buy Nike (NKE) Stock Ahead of Q1 Earnings?

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Nike (NKE - Free Report) shares surged to a new high Thursday and have jumped over 16% in the last three months, topping the S&P 500’s roughly 6% gain. Now the question for investors is should they buy Nike stock ahead of the release of its upcoming fiscal first-quarter financial results?

Overview

Nike faced a somewhat turbulent stretch not too long ago that saw the sportswear giant’s North American sales growth decline for nearly a year. But Nike management never wavered from their assurance that the firm would return to growth in its largest market. The Oregon-based company transitioned its business toward more direct-to-consumer sales through an array of Nike apps, along with partnerships with Amazon (AMZN - Free Report) , Chinese e-commerce power JD.Com (JD - Free Report) , and even Facebook (FB - Free Report) .

Nike said on its Q4 earnings call that Nike Direct drove 90% of the company’s growth in fiscal 2018, with digital sales up 41% in the fourth quarter. Nike’s overall quarterly revenues climbed by 13% to hit $9.79 billion. Maybe more importantly, North American sales jumped 3% to hit $3.88 billion. Plus, Nike’s sales in Greater China soared 35% to $1.47 billion.

The company’s growth in Europe and China outpaced rival Adidas’ (ADDYY - Free Report) expansion in those two vital markets last quarter. Nike is also the official jersey sponsor and an apparel partner of the NFL through the 2028 season. Despite the league’s declining TV ratings, it is still by far the most popular sport in the U.S. And initial worries that Nike’s new Colin Kaepernick-focused ads would hurt NKE stock have proven false.

Nike is also about to enter the second year of an eight-year sponsorship deal with the NBA. The firm’s dominance in the NBA, which is one of the most popular sports in China, will likely be even more important going forward than its relationship with the NFL. Not to mention, Nike’s ever-expanding presence in soccer and success in the athleisure market alongside Lululemon (LULU - Free Report) and Gap (GPS - Free Report) —Under Armour (UAA - Free Report) has notably failed to gain traction in this quickly-growing area.

Price Movement & Valuation

Shares of Nike have climbed roughly 148% over the last five years, which crushes its industry’s 54% jump and the S&P 500’s 75% surge. These gains include a significant period of downward and sideways movement between the end of 2015 and the fall of 2017. Since the start of 2018, NKE stock has been one of the better S&P performers, up approximately 37%. This climb outpaces Apple’s (AAPL - Free Report) 30.5% jump and Microsoft’s (MSFT - Free Report) 33% climb.

 

 

Nike stock is currently trading at 30.5X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared its industry’s 21.8X. It is also worth noting that NKE has traded as low as 21X over the last year, with a one-year median of 26.2X. With that said, investors will see that NKE’s valuation picture is not that stretched compared to where it has traded over the last 36 months.

 

 

Outlook

Nike is projected to see its Q1 fiscal 2019 revenues pop by 8.9% to hit $9.88 billion, based on our current Zacks Consensus Estimate. At the other end of the income statement, Nike’s quarterly earnings are expected to jump by 8.8% to $0.62 per share.

Nike’s quarterly EPS projection has climbed by $0.01 over the last 30 days. NKE has also earned three positive earnings estimate revisions for Q1 during the last 60 days, with 100% agreement to the upside.

Bottom Line

Nike’s excellent management team rarely falls short of earnings estimates. In fact, the company has topped our quarterly estimates for almost five straight years. With that said, investors will likely look once again to Nike’s North American performance and its growth in China.

The sportswear powerhouse is expected to see its North American revenues hit $4.047 billion based on our current NFM estimates. This would mark a 3% jump from the year-ago period’s $3.924 billion. Meanwhile, Nike’s revenues in Greater China are projected to jump over 21% from $1.108 billion to $1.342 billion.

Nike is currently a Zacks Rank #3 (Hold) and sports an “A” grade Growth and a “B” for Momentum in our Style Scores system. Therefore, Nike stock seems like it might be worth considering ahead of its Q1 earnings release.

Nike is scheduled to report its quarterly financial results after the close of regular trading on Tuesday, September 25.

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