Nike Is Dominating China Despite The Country's Economic Problems

• The share price of Nike, Inc. NKE has risen 17.51 percent, year to date.
• Deutsche Bank’s Dave Weiner has maintained a Buy rating on Nike, while raising the price target from $120 to $125.
• Weiner believes that the company would benefit from its exposure to China, despite the macro risks in the country.

According to the Deutsche Bank report, there are three key reasons for the company to benefit from its presence in China. Firstly, while growth has slowed in several retail sectors in the country, year to date, the athletic industry continues to outperform.

Secondly, Nike’s “reset” plan for China appears to be bearing fruit, driving market share and boosting segment operating margins “back towards peak.” Weiner believes that “Nike’s China game plan is resonating with consumers,” with the company’s revenue and order book outperforming peers.

“Third, most importantly, China’s govt. is implementing supportive policies formalizing ‘Sport’ as a growth industry,” the report stated. Weiner estimates CAGR of more than 13.4 percent through 2025, with Nike witnessing regional sales of more than $10 billion and operating margins of over 150 bps in 2025.

The Chinese government’s plan is for the Sports industry to reach $785 billion by 2025. “The plan includes increasing fitness participants to 500M (including within schools), increasing land use for Sport, focusing on soccer & basketball, and encouraging private/foreign investment,” Weiner added.

The EPS estimate for FY17 has been raised from $4.64 to $4.70.