Top Nike Analysts Love Recent Numbers

• Shares of Nike Inc NKE have appreciated 38.51 percent year to date, touching a high of $134.33 on November 27.
• Several top analysts recommended buying the stock, while one preferred to remain on the sidelines.
• The analysts believe that “Santa came early” for Nike this year, with the company posting strong EPS and futures growth for 2Q16.

Santa Came Early

Macquarie’s Laurent Vasilescu has reiterated an Outperform rating on the company, while raising the price target from $150 to $155.

Nike posted more than 20 percent EPS growth once again for 2Q16, with “very impressive” futures of 20 percent. North American revenues rose in the high single digits, while futures grew 14 percent.

Vasilescu mentioned that the 60 bps year on year improvement in the EBIT margin during 2Q was encouraging. Management has guided to a 50 bps gross margin decline for 3Q16, in order to clear inventories.

Internationally also the company continued its strong momentum, with futures growth in the double digits, on a constant currency basis. “Particular strength came from China and Western Europe,” Vasilescu said, where gross and EBIT margins improved, despite FX headwinds.

The FY16 EPS estimate was raised from $4.43 to $4.46.

Continued Momentum

Brean Capital’s Eric Tracy maintained a Buy rating on the company, while raising the price target from $144 to $147.

“We remain constructive on shares of NKE, with 2Q showing continued momentum across all geographies and most product categories,” Tracy stated.

Tracy believes that visibility into the company’s fundamentals continue to be high, with innovation giving Nike a competitive edge and supporting pricing. Structural drivers for the company, such as manufacturing and supply chain, continue to drive accretive growth.

The company reported its EPS and futures growth well ahead of the estimates and consensus, although revenue was in line with the estimates and below the consensus. Excess inventory in the domestic markets are expected to weigh on gross margins in the near term, with the 3Q gross margin guided down 50 bps year on year.

According to the Brean Capital report, “While these headwinds should be more than offset by strong int'l growth, we also believe clearance efforts will create opp to highlight new products, with the innovation pipeline accelerating into mega-sporting events in CY16.”

Apparel ASP growth is also expected to accelerate, with Nike’s “best-in-class R&D program catalyzing premium product position.”
The EPS estimates for 3Q, 4Q, FY16 and FY17 have been raised to reflect the 2Q beat and robust futures growth.

Among Best S&P 500 Stocks

Morgan Stanley’s Jay Sole has maintained an Overweight rating on Nike, with a price target of $139.

According to Sole, “Nike’s solid 2Q16 report confirmed the long-term story is intact and the global athletic wear trend continues.”

Sole also mentioned that the Nike has been among the S&P 500’s best stocks year to date and that further outperformance was expected in 2016.

Sole believes that the 2Q results illustrate that the company is capitalizing on various opportunities, with China revenue increasing 28 percent and online sales growing almost 50 percent year on year.

The 20 percent increase in global futures suggests that the company continues to gain significant market shares across all major geographies.

“Nike’s second quarter also demonstrated the power of its business model and the ways it can offset weakness in one area with strength in another to exceed,” the Morgan Stanley report added.

Incredible Futures Growth

Canaccord Genuity’s Camilo Lyon maintained a Hold rating on the company, with a price target of $132.

Although the 2Q EPS beat expectations, Lyon noted that the “beat was less robust than in prior quarters,” and “largely driven by a lower tax rate, a push-out of expenses and slightly better gross margin, partly offset by lower revenue, less other income and higher shares outstanding.”

The significantly higher than estimated global futures suggests that demand remained strong across the company’s key geographies, with continued strength in North America, which Lyon believes bodes well for athletic retailers.

Western Europe and China witnessed sequential acceleration, implying strong demand across various categories. “Despite volatile macro-economic conditions, China is experiencing tremendous growth as NKE continues to reap the early benefits of its reset strategy.” the Canaccord report said.

Lyon expects the impressive DTC growth to continue going forward, with sportswear likely to the key to sustained ASP growth.

Running Fast Enough

DA Davidson’s Andrew Burns maintained a Buy rating on the company, while raising the price target from $145 to $156.

Most companies have been highlighting the highly challenging retail environment, particularly in the US. Against this backdrop, Nike’s success across footwear, apparel, DTC and all geographic regions “is impressive,” Burns said.

The company has delivered the third consecutive quarter of Futures order growth acceleration, which underlines the brand’s growing popularity. Although excess inventory in North America is expected to exert pressure on F3Q gross margin, Burns pointed out that the full year outlook “implies a quick snap back in F4Q margin performance.”

“Longer-term, we remain confident in NKE’s ability to expand gross margin via pricing power, operational efficiencies and DTC outgrowth,” the analyst added.

Elsewhere On The Street

Jefferies analysts maintained a Buy rating, while raising the price target from $144 to $147.
Citi analysts maintained a Buy rating, while raising the price target from $142 to $154.
Buckingham Research analysts maintained a Buy rating, while raising the price target from $140 to $150.