Earnings Beat In The Cards For Nike Stock?

by Trefis Team
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Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal third-quarter (ended Feb) results on Thursday, March 18. We expect Nike to likely beat revenue and earnings expectations marginally, driven by a boost in digital revenues. The company has added more than 70 million new members worldwide to its loyalty program since the start of the coronavirus pandemic. Even when Nike was faced with the temporary closure of the majority of its global stores, the company managed to post revenues of $38.2 billion for the last four quarters, down 6% from the consolidated figure of $40.8 billion for the four-quarter period before that. Nike has shown that it still has what it takes to grow – with revenue for the six months of fiscal 2021 jumping 4% year-over-year (y-o-y), digital revenues growing roughly 80% y-o-y in both quarters, and net income increasing 12% y-o-y. While rising pandemic limits on shopper traffic and continued supply chain disruptions in the fiscal Q3 could lead to continued year-over-year declines in physical retail sales, we expect the momentum in online sales to drive growth in the upcoming quarter.

Our forecast indicates that Nike’s valuation is just over $145 a share, which is in line with the current market price. Look at our interactive dashboard analysis on Nike‘s Pre-Earnings: What To Expect in Fiscal Q3? for more details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Nike’s Q3 2021 revenues to be around $11.1 Bil, marginally ahead of the consensus estimate. Nike is doing exceptionally well now thanks to its loyal customer base, unique product portfolio, digital infrastructure, and impressive gains in China. In fiscal Q2 (ended Nov 30), the company’s revenue increased 9% y-o-y and diluted earnings per share grew 11% y-o-y. The retailer found a dramatic shift in revenue generation from stores to e-commerce, as its direct-to-consumer segment increased by 84% y-o-y to account for more than 30% of total sales. In addition, the Greater China segment recorded 24% revenue growth and now represents 21% of Nike Brand revenue.

Nike is committed to opening more stores to accelerate growth and provide a more digitally connected experience for customers. It announced plans to open 30 stores in the second half of fiscal 2021. The company’s management has also announced a 12% increase in its annual dividend to $1.10 per share, in line with its track record of raising dividends for 19 consecutive years. Looking further, it is easy to believe that the easing of pandemic restrictions will result in a surge due to pent-up demand. In addition, the forthcoming Summer Olympics will also likely contribute to spending more on athletic wear.

2) EPS also likely to be marginally ahead of consensus estimates

Nike’s Q3 2021 earnings per share (EPS) is expected to come at 78 cents per Trefis analysis, almost 2% above the consensus estimate of 76 cents. The retailer saw incremental expenses and elevated inventory levels in Q2 but still managed to grow its net income, due to a slump in marketing and advertising costs. However, it should be noted that these costs are not expected to repeat themselves given that sporting events are up again.

For the full-year, we expect Nike’s net margin to grow a strong 430 basis points to 11.1% in fiscal 2021, driven by higher digital sales. This coupled with a 16% y-o-y growth in Nike’s revenues, could lead to a rise of $2.2 billion y-o-y in net income to $4.8 billion in fiscal 2021. All this, resulting in a possible EPS increase from $1.60 in FY 2020 to around $3.03 in FY 2021.

(3) Stock price estimate in line with the current market price

Going by our Nike’s Valuation, with an EPS estimate of around $3.03 and P/E multiple of around 48x in fiscal 2021, this translates into a price of just over $145, which is in line with the current market price.

While NKE stock may trade higher post the fiscal Q3 release, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Casey’s General Stores vs. Sprouts Farmers Market shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

See all Trefis Price Estimates and Download Trefis Data here

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