Why Jefferies Likes Nike After Earnings - Nike (NYSE:NKE)

It seems like almost everyone was surprised by Nike Inc NKE’s earnings, reported on Thursday afternoon. Even the most bullish estimates pointed to earnings below $0.90 per share, but they finally came in at $0.98 per share, up 25 percent year-over-year.

The Rating

Following the announcement, Jefferies analysts Edward Plank and Randal J. Konik reiterated a Buy rating on the stock, while boosting their price target from $120 to $122 on the back of the company’s better-than-expected performance on almost all fronts. The experts commented that “while there are some unusual factors ahead, largely FX related,” they believe “underlying demand is quite healthy across categories and geographies and are particularly encouraged by the potential to expand margins in the coming years.”

The research firm points out three key factors to consider in relation to Nike (and its financial results):

1. Strength across most categories: Even amid FX headwinds and some inventory overhang, the strength bodes well for fiscal 2016 (the fiscal year that just started for the company). The analysts are especially encouraged by ongoing robustness in running, basketball and sportswear segments.
2. Geographic results were also impressive: North America, Europe and China displayed particular sturdiness in sales, operating income and EBIT margins. “Additionally, Mexico inventories are cleaner and we expect supply/demand in Brazil to stabilize soon,” the firm added.
3. Jefferies continues to see margin and sales upside opportunities: Particularly in women’s, apparel and DTC. “Ongoing ASP growth through innovation, coupled with increasing mix shifts toward higher-margin DTC and apparel provide a GM tailwind,” the experts expounded.

Shares of Nike are up more than 4 percent on Friday trading.

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