'Nothing To Fear' In Nike's Earnings, Sterne Agee CRT Says

Nike Inc NKE is expected to report its third quarter financial results on March 22. Analyst Sam Poser of Sterne Agee CRT says "nothing to fear" about the upcoming quarterly report.

Wall Street analysts, on average, expect the athletic footwear and apparel giant to earn $0.49 a share on revenue of $8.20 billion. This implies year-over-year growth of 8.9 percent in earnings and 9.9 percent in sales.

Poser forecast EPS of $0.50, which represents an 11.3 percent growth from last year, on revenue of $8.19 billion.

Nike guided to reported revenue growth of high single digit – low single digit, and mid-teens revenue growth on an FX neutral basis. Guidance further called for gross margin to be down 50 basis points.

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SG&A is expected to grow at a mid-teens rate due to increased investments in DTC, digital commerce, and major events such as the Super Bowl and the NBA All Star Game.

"We have modeled 3Q gross margin in line with guidance but do not expect to see as much expense growth," Poser said in a note.

"We are forecasting FX-neutral future orders to increase 13.4%. We view the 20% increase in 2Q16 future orders as an anomaly, and the reaction of the NKE stock reflects that. Any deceleration in FX-neutral futures should not be cause for concern," Poser added.

The analyst, who has a Buy rating on Nike, said a 13 percent increase in future orders for a company that does about $33 billion in annual sales is impressive, and more than adequate to have the stock work from here.

However, there may be some upside to his future order estimates, as the future orders that will be reported next week are the first to include products for the Olympics. The innovation pipeline appears to be full, the analyst said.

Meanwhile, Poser noted that China's business will continue to improve, and the recent strength of Adidas adding more focus to the sports business, will do nothing to slow Nike's momentum. Based on his checks, the product pipeline is strong both pre- and post Olympics. The 2020 revenue target of $50 billion will be achieved in FY19.

Poser raised his FY17 EPS estimate to $2.50 from $2.49. However, he maintained his $75 price target on the stock.