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Buy Nike (NKE) Stock Before Earnings, Heading into 2019?

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Shares of Nike (NKE - Free Report) have fallen roughly 12% over the last three months as part of the larger market decline. Yet, the sportswear powerhouse has quickly revamped its business to focus on direct-to-consumer sales and has returned to growth in North America as it continues to expand around the globe.

Overview

Nike saw its fiscal Q1 revenues jump 10% to top Wall Street estimates and reach $9.95 billion. The firm’s North American revenues popped 6% to hit $4.15 billion, which marked the second quarter of growth in this vital region, after three straight periods of sales declines. On top of that, Greater China revenues climbed 20% to touch $1.38 billion—marking the 17th consecutive quarter of double-digit growth in the world’s second-largest economy.

Maybe more importantly, Nike Digital was the company’s fastest-growing channel in every one of the firm’s regions, with mobile expansion leading the way. Overall, Nike’s digital sales soared 36%. Nike has rolled out a series of apps aimed to increase brand loyalty and consumer engagement. The Oregon-based giant also blows away its largest competitors, Adidas (ADDYY - Free Report) and Under Armour (UAA - Free Report) , in terms of reach across social media from Facebook’s (FB - Free Report) Instagram to Twitter (TWTR - Free Report) .

 

 

Nike has also introduced innovative retail concepts as everyone from Restoration Hardware (RH - Free Report) to Nordstrom (JWN - Free Report) fight to attract customers to their brick-and-mortar locations in the age of Amazon (AMZN - Free Report) and online shopping. The sportswear giant has also partnered with Walmart (WMT - Free Report) -backed FlipKart to reach the growing Indian e-commerce market.

Yet, most importantly, Nike has remained relevant in terms of sports stars and off-the-court style in a sports apparel age dominated by athleisure. Nike not only sponsors some of the biggest names across basketball and soccer—the world’s most popular sports—but also partners with trendy and culturally relevant fashion brands to constantly create new must-have styles.

Going forward, the company’s ability to maintain both its performance and athleisure style will help it remain the most powerful sports apparel firm, even as smaller brands like Lululemon (LULU - Free Report) , Gap’s (GPS - Free Report) Athleta, and Puma innovate and expand.  

Valuation

We can see from the chart above that Nike stock has crushed the S&P 500 over the last decade, up 472% compared to the index’s 190% climb. NKE is also up roughly 17% over the last year despite its recent downturn. Still, Nike stock closed Thursday at $72.93 per share. This marked a 15% downturn from its 52-week high of $86.04 a share and could set up a solid buying opportunity for those high on Nike.

Meanwhile, Nike stock is currently trading at 25.2X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared to its industry’s 17.4X. With that said, Nike has traded as high as 30.9X over the last five years, with a five-year median of 24.2X. Therefore, we can say that Nike’s valuation picture isn’t that stretched at the moment.

 

Outlook

Moving on, NKE is projected to see its fiscal Q2 revenues pop 7.1% to hit $9.16 billion, based on our current Zacks Consensus Estimate. More specifically, the company’s North American revenues are projected to jump roughly 6% from the year-ago period to reach $3.69 billion, based on our NFM estimates. Nike’s revenues in China are expected to surge 16% to hit $1.42 billion.

Looking further ahead, the company’s current full-year revenues are expected to climb by 7.3% to $39.04 billion. Peeking ahead to the following year, the company’s fiscal year revenues are projected to pop 7.6% above our current-year estimate.

At the other end of the income statement, Nike’s adjusted quarterly earnings are expected to slip roughly 2% to $0.45 per share. However, the company’s full-year EPS figure is projected to pop by 8.7%. Better yet, Nike’s earnings are projected to climb nearly 19% above our fiscal 2019 estimate, which helps show that its new direct-to-consumer push might help the company become more profitable down the road.

Bottom Line

Nike has seen both its quarterly and its full-year earnings revisions trend more positively within the last seven days. Investors should also note that Nike has an excellent management team that seen it top our quarterly earnings estimates for over five straight years.

 

In the end, investors should ask themselves if they see any company surpassing Nike in terms of clout and reach any time soon. Nike currently sponsors both the NFL and the NBA, and has come to compete head to head against European giant Adidas in soccer.

Plus, Nike dominates basketball in general, which has become the most popular sport in China. Nike also remains dedicated to pushing forward new fashion and athleisure trends, and its direct-to-consumer push should help it become a more streamlined business. And let’s not forget that amid the current retro wave that Nike owns Converse, which could easily make a comeback after brand revenues jump 7% last quarter.

Nike is set to release its fiscal Q2 2019 financial results after the closing bell on Thursday, December 20.

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