The Goldman Sachs and Nike corporate logos are displayed on a post above the floor of the New York Stock Exchange, September 11, 2013. In the biggest shake-up of the Dow Jones industrial average in nearly a decade, Goldman Sachs, Visa and Nike will join the storied 30-stock index, with Bank of America, which just two years ago was the largest U.S. bank by assets, one of the names exiting the Dow.
"The traditional opening of earnings season was scheduled [to be] after Tuesday (10/8) with Alcoa; the new official Dow opening is [Thursday 9/26] with Nike," said Howard Silverblatt, a senior index analyst with S&P.
Alcoa used to be the first component of the Dow Jones Industrial Average to announce earnings.
But on September 10, it was announced that Nike and Goldman Sachs would be replacing Alcoa and Bank of America in the Dow.
As an aluminum producer with global footprint, Alcoa continues to be a bellwether of global economic activity.
But Nike is no slouch either. It too is a global player, but it offers insight into personal consumption rather than industrial activity.
And it literally has a major footprint in China, the world's second largest economy.
Unfortunately, Nike's results are expected to be impacted by some supply issues, a problem Alcoa coincidentally faced in aluminum.
"The athletic industry in China continues to make progress in working through excess inventory clearance issues through discounting," writes Citi analyst Kate McShane. "Belle (Nike and Adidas' largest retailer in China) reported a 1H13 beat, noting a relatively stable promotional environment and inventories. Belle’s increased investments in its clearance e-commerce platform should also benefit Nike."
Citi expects Nike to report quarterly earnings of $0.77 per share, which is below the consensus estimate of $0.78. McShane has a Buy-rating on the stock with a $81 price target.
It's worth noting that the changes to the Dow will impact the earnings growth expectations for the Dow as a whole. From FactSet's John Butters:
It is interesting to note that the addition of these new components will actually result in lower expected earnings growth for the DJIA over the next several quarters. Using the “old” constituents (including Alcoa, Bank of America, and Hewlett-Packard), the average estimated earnings growth rate over the next five quarters (Q313 – Q314) is 6.9%. Using the “new” constituents (including Goldman Sachs, NIKE, and Visa), the average estimated earnings growth rate over the next five quarters is 5.0%. For each of these quarters, estimated earnings growth using the “new” components is expected to be lower than the expected earnings growth using the “old” components.
The main reason for the decrease in expected earnings growth under the “new” components is the removal of Bank of America from the index. As of today, Bank of America is projected to be the largest contributor to earnings growth for the DJIA in four of the next five quarters (with the exception of Q214). Over the next five quarters (Q313 – Q314), the projected EPS estimates for Bank of America are $0.20, $0.29, $0.30, $0.34, and $0.35, compared to year-ago EPS numbers of $0.00, $0.03, $0.20, $0.32, and $0.20.
"The estimated earnings growth rate for Q3 2013 is 3.4%," said Butters of the S&P 500. "The Financials sector is predicted to report the highest earnings growth for the quarter, while the Health Care sector is predicted to report the lowest earnings growth for the quarter."
Nike's earnings will be released after the closing bell on Thursday.
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