Down 19% In Last Twelve Months, Will Nike Stock Gain Following Q3 Results?

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[Note: Nike fiscal year ends in May]

Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal 2024 third-quarter results on Thursday, March 21. We expect Nike’s stock to trade higher with revenues and earnings beating market estimates. The athleisure giant has been grappling with supply chain constraints and a slower-than-expected recovery in China. Nike’s revenue isn’t growing as much as expected, but the company’s profitability is strong and it has a huge competitive advantage due to its brand and the demand it has been able to build. While the company’s stock could likely be pressured in the short term, the company’s long-term prospects look good. Nike’s revenue for the first six months of fiscal 2024 grew only 1% year-over-year (y-o-y) to nearly $26 billion, but its earnings per share rose a solid 11% y-o-y to $1.97. A 14% drop in Q3 inventory levels and a steady flow of innovative footwear releases have helped push profit margins higher in fiscal 2024 so far. Nike’s Q3 gross margin landed at 45%, up 2 percentage points y-o-y.

Looking ahead, Nike’s management only expects 1% full-year revenue growth in FY 2024. It should be noted that the company plans to reduce expenses and also has about $11 billion left on its share repurchase authorization. Nike’s upcoming Q3 report should provide an update on its inventory levels and pricing, along with its cost-cutting efforts. Nike’s stock is down almost 19% in the last twelve months but it’s too early to say that Nike is permanently losing market share to upstart rivals. Nike is a business that is largely stable with plenty of resources to compete. Over the next three years, Nike plans to reduce its expenses by $2 billion, which could enable its operating profit margin to reach the levels seen during the pandemic of over 15% (compared to the current ~12%)

Notably, NKE stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 18% in 2021, -30% in 2022, and -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that NKE underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NKE face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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Our forecast indicates that Nike’s valuation is $120 per share, which is 22% higher than the current market price. Look at our interactive dashboard analysis on Nike’s Earnings Preview: What To Expect in Fiscal Q3? for more details.

(1) Revenues expected to beat the consensus estimates slightly

Trefis estimates Nike’s Q3 2024 revenues to be around $12.4 Bil, marginally ahead of the consensus estimate. Nike reported revenues were up 1% year-over-year (y-o-y) to $13.4 billion in Q2 2024 (ended Nov 30). This lackluster result was driven by weakness in the core U.S. market, as footwear demand dropped 5% in North America compared to a 2% fall in the prior quarter. At the same time, budding rival Lululemon Athletica reported 19% revenue growth for its latest fiscal quarter. Additionally, major Chinese competitors also posted double-digit top-line growth.

2) EPS to come in ahead of consensus estimates

Nike’s Q3 2024 earnings per share (EPS) is expected to come in at 78 cents per Trefis analysis, comfortably beating the consensus estimate. The company’s Q2 diluted earnings per share were up 21% y-o-y to $1.03. Net income was up partly due to a better mix of digital sales and EPS grew faster than net income thanks to share repurchases.

(3) Stock price estimate higher than the current market price

Going by our Nike’s Valuation, with an EPS estimate of around $3.72 and a P/E multiple of 32.4x in fiscal 2024, this translates into a price of $120, which is 22% higher than the current market price.

It is helpful to see how its peers stack up. NKE Peers shows how Nike’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NKE Return -5% -9% 94%
 S&P 500 Return 1% 8% 130%
 Trefis Reinforced Value Portfolio -2% 3% 630%

[1] Returns as of 3/18/2024
[2] Cumulative total returns since the end of 2016

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