Time to Buy Nike (NKE) Stock at New High?
Nike NKE saw its stock price surge over 3% Monday to touch a new 52-week high on the back of an analyst upgrade. The question is what has investors excited about the sportswear giant as it aims to fight off the likes of Adidas ADDYY, and should you buy NKE stock as it hovers at a new all-time high?
Susquehanna analysts raised their NKE price target from $78 per share to $93 per share, which marked a roughly 17% upside from Nike’s closing price on Friday of $79.75 per share. The firm also upgraded Nike stock from “neutral” to “positive” on Monday, citing the Oregon-based company’s growing market share. Susquehanna noted that Nike has been able to gain market share from German rival Adidas and Foot Locker FL.
Much of the upgrade focused on Nike’s ability to adapt in the new retail age and reach consumers through its massive new e-commerce push, which includes initiatives such as its SNKRS app and NikePlus memberships, as well as partnerships with Amazon AMZN, Chinese e-commerce power JD.Com JD, and even Facebook’s FB Messenger app.
“We contend that the clean inventories in the marketplace, the growing [direct-to-consumer] business, and new innovative product will drive more full price selling than [Nike's] guidance infers, primarily driven by the improvement in the North American market," Susquehanna analyst Sam Poser wrote in a note to clients.
Nike was able to return to growth in North America last quarter after experiencing declines in its home market for nearly a year. The company has been able to turn things around through a massive direct-to-consumer push. The firm’s quarterly revenues climbed by 13% to hit $9.79 billion, with North American sales up 3% to hit $3.88 billion.
Nike’s sales in Greater China skyrocketed 35% to $1.47 billion. Investors should also note that Nike’s growth in Europe and China outpaced Adidas’ expansion in those two vital markets during its most recent quarter. Nike also said on its earnings call that Nike Direct drove over 90% of its growth for the year, with digital sales up 41% in Q4.
Nike, like other retailers, has tried to move on from a wholesale focus and an overreliance on Dick’s Sporting Goods DKS and other retailers. The shift is not only good business as consumers change their shopping habits, but it should also help make Nike a much more profitable company in the long-run.
Nike has also been successful in the quickly-growing athleisure market, unlike Under Armour UAA. And the company has vowed to make an even bigger jump into athleisure in order to take on Lululemon LULU, Gap GPS, and others.
Shares of Nike have climbed roughly 156% over the last five years, which outpaces its industry’s 55% jump and the S&P 500’s 78% surge. NKE experienced a huge amount of turbulence over the last three years, up just around 54%. But, over the last 12 months, shares of NKE have surge once again, and now sit near a brand new high of $82.33 per share.
Moving on, Nike stock is currently trading at 29.4X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared to Adidas’ 22.3X as well as its industry’s 25.2X. NKE has also traded as low as 21X over the last year, with a one-year median of 25.9X.
Plus, investors will see that Nike stock is currently trading near both its one-year and its five-year high. Therefore, NKE’s valuation picture appears a bit stretched at the moment.
Looking ahead, NKE is projected to see its quarterly revenues pop by over 8.6% to hit $9.85 billion, based on our current Zacks Consensus Estimate. Nike’s fiscal 2019 revenues are expected to climb by 7.8% to $39.22 billion.
At the other end of the income statement, Nike’s quarterly earnings are expected to jump by 7% to $0.61 per share, while its full-year EPS figure is projected to pop by 7.8%. Nike has experienced mixed earnings estimate revision activity over the last 60 days, which helps it earn its Zacks Rank #3 (Hold).
Nike stock seems worth considering at the moment, but it might be better to wait for NKE to cool off just a bit since its valuation picture is not the best right now as it sits at a new high.
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