Bernstein Turns Incrementally Bullish On Nike

Nike Inc NKE reported a strong earnings beat in its fiscal fourth- quarter, which initially sent shares above its 52-week high. But shareholders late to buy the stock could still see returns from current levels.

The Analyst

Bernstein's Jamie Merriman maintains an Outperform rating on Nike with a price target lifted from $76 to $84.

The Thesis

Some of Merriman's key takeaways from Nike's report include:

• North America revenue finally not only turned positive in the quarter by 3 percent, but exceeded expectations of 0.9 percent growth;
• International growth was also impressive led by 25 percent in China;
• Digital growth of 34 percent,
• Gross margin rose by 60 basis points to 44.7 percent and exceeded expectations of 44.4 percent; and
• Ongoing ramp of new products like Epic React and Vapormax.

Nike's stock has seen sustained momentum since September 2017 where it re-rated from 21.1 times next 12 motnhs (NTM) EPS to close at 26.7 times NTM EPS after Thursdays' market close, the analyst wrote. The multiple expansion is justified as Nike's earnings report emphasizes the potential for continued margin expansion over the coming years along with above average earnings growth.

A bullish stance is also warranted as the company made it clear it's making the right investments in its direct-to-consumer business to pull demand.

Price Action

Shares of Nike were trading higher by nearly 10 percent at $78.80 early Friday morning, which is above the stock's 52-week high of $75.91.

Related Links:

The Bullish Signals That Won Nike A Price Target Increase From Wedbush

Nike's Product Line Is Tipping In A Positive Direction, According To Foot Locker

Photo credit: Emily Elconin.