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Nike Stays Neutral

Zacks Equity Research

Global leader in sports equipment and apparel, Nike Inc. (NKE) remains on our Neutral list with a target price of $66.00. Our long-term recommendation is well supported by the Zacks Rank #3 (Hold).

Why Reiterate?

Nike’s strong portfolio of globally recognized brands – such as Nike, Converse, Chuck Taylor, Hurley, All Star, One Star, Star Chevron, and Jack Purcell – and its focus on innovation have helped in strengthening its leadership position. Nike is striving to find opportunities to expand its global footprint and augment its market share through acquiring new brands, developing its direct-to-customer business and divesting underperforming brands. Taken together, these strategies position the company strongly among competitors such as Adidas AG and Brown Shoe Co. Inc. (BWS).

Moreover, this footwear and athletic apparel retailer has outperformed the Zacks Consensus Estimate in the trailing 4 quarters, recording an average beat of 9.5%. In the most recent quarter, it posted an earnings surprise of 2.7% and a 27.0% increase in earnings per share, aided by healthy top-line growth, improved margins and lower share count. Net sales surged 7.0% year over year, driven by the great demand for NIKE brand.

Apart from strong fourth-quarter results, Nike’s growth prospects appear promising. We believe the company’s prudent investment as well as strategic initiatives toward product innovation and brand building will increase its customer base and profitability. Going forward, we expect the company’s top-line growth to remain strong, given an increase in future orders.

On the flip side, rising commodity prices pose a challenge and may undermine the company’s future performance. In addition, we expect sluggish discretionary spending and intense competition amid rapidly changing customer preferences to dent Nike’s future prospects. Consequently, we prefer to keep to the sidelines at present.

Other Stocks Worth Considering

Other stocks that are worth a look in the sports retail industry include Carter’s Inc. (CRI) and Deckers Outdoor Corp. (DECK). Both the companies carry a Zacks Rank #2 (Buy).

Read the Full Research Report on NKE

Read the Full Research Report on DECK

Read the Full Research Report on BWS

Read the Full Research Report on CRI

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