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Nike Earnings Preview: Marginal EPS Growth Expected

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Nike (NYSE: NKE), which will face off against rival Addidas again during next summer's World Cup in Brazil, is scheduled to report its second quarter fiscal 2014 results Thursday, December 19, after the markets close.

Investors will be looking to see whether the company's performance in China has improved and if its women's and basketball categories continue to show strong growth. Nike may also discuss plans for upcoming major sporting events in 2014, such as the World Cup and Olympics.

Expectations

Analysts on average predict that Nike will say that its revenue for the quarter grew around eight percent year-over-year to $6.44 billion. Earnings of $0.58 per share are also in the consensus forecast. That would be slightly up from $0.57 per share in the same period of last year.

The analysts seem confident, as that consensus earnings per share (EPS) estimate is unchanged from 60 days ago. But note that Nike has topped consensus EPS expectations in recent quarters. The first quarter beat was by more than 10 percent.

In the first-quarter report, Nike said strength in North America and Europe offset weakness in Asia. It attributed its strong results to the strengthening of its brands. "I am more excited than ever about our potential to continue to innovate with purpose," the CEO said. The share price rose more than four percent to a new 52-week high following the first-quarter report.

Looking ahead to the current quarter, the analysts' consensus forecast calls for sequential and year-on-year growth of both EPS and revenue. So far, full-year EPS are expected to be up almost 12 percent on a rise of more than eight percent in revenues, relative to the previous year.

The Company

Nike is the world's leading supplier of athletic shoes and apparel. It also sells sports accessories and performance equipment, such as sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment and golf clubs. It also operates retail stores under the Niketown name.

The company was founded in 1964 and is now headquartered in Beaverton, Oregon. It is an S&P 500 component and has a market capitalization of more than $68 billion. Mark Parker has been the president and chief executive officer since January 2006.

Competitors include Adidas and Under Armour. The full-year forecast for the former calls for a decline in per-share earnings and revenue to rise about three percent from the previous year. Analysts expect the latter to post EPS that are up more than 11 percent and sales that are more than 22 percent higher for the current quarter.

During the three months that ended in November, Nike joined the Dow Jones Industrial Average, revealed its four-year growth plan, rolled out the latest version of its FuelBand fitness tracker, launched a new iPhone app and hiked its quarterly dividend by 14 percent.

See also: Nike's Next Smartwatch Coming In Early 2014

Performance

The long-term EPS growth forecast is more than 12 percent, and the price-to-earnings (P/E) ratio is lower than the industry average. The return on equity is about 25 percent, and the operating margin is greater than the industry average. Nike's dividend yield is about 1.2 percent.

The number of Nike shares sold short, as of the November 29 settlement date, represents more than one percent of the total float. That was the lowest level of short interest since September, after falling for the past two periods. It would take more than three days to close out all of the short positions.

Of the 26 analysts surveyed by Thomson/First Call who follow the stock, 14 recommend buying shares, with six of them rating the stock at Strong Buy. Their mean price target, or where they expect the stock to go, is about four percent higher than the current share price. But a positive surprise or rosy guidance could prompt hikes of individual price targets.

The stock has pulled back about four percent from last week's multiyear high to below the 50-day moving average. Still, the share price is up more than 47 percent year to date. Over the past six months, the stock has outperformed Adidas and the Dow Jones Industrial Average.

See also: Women's Sportswear Market May Overtake Men's In Sales

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: Addias Nike under armour World CupEarnings News Previews Trading Ideas Best of Benzinga

 

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