Down 13% This Year, Will Nike Stock Recover Following Q4 Results?

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NKE: Nike logo
NKE
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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 fourth-quarter results on Thursday, June 27. We expect Nike’s stock to likely trade higher with revenues and earnings beating market estimates marginally. At the current price of around $95 per share, Nike’s stock is down 13% so far this year. In comparison, NKE’s peer Lululemon (NASDAQ: LULU) stock is down 40% since the beginning of this year. Nike 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. Looking ahead, Nike’s management only expects 1% full-year revenue growth in FY 2024. 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 ~13%).

NKE stock has suffered a sharp decline of 30% from levels of $140 in early January 2021 to around $95 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. 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 HD, 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 $101 per share, which is almost 7% higher than the current market price. Look at our interactive dashboard analysis on Nike’s Earnings Preview: What To Expect in Fiscal Q4? for more details.

(1) Revenues & EPS expected to come in slightly ahead of consensus estimates

Trefis estimates Nike’s Q4 2024 revenues to be around $12.2 Bil and earnings per share (EPS) is expected to come in at 81 cents per Trefis analysis, both beating market expectations marginally. For the first nine months of fiscal 2024, Nike’s revenue grew only 1% year-over-year (y-o-y) to nearly $39 billion, but its earnings per share rose a solid 7% y-o-y to $2.76. Inventories for Nike were $7.7 billion, down 13% compared to the prior year in the Q3. A steady flow of innovative footwear releases and a drop in inventory levels pushed for higher profit margins in FY 2024 so far. Nike’s gross margin landed at 44.5%, up 100 basis points y-o-y in the first three quarters of 2024.

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

Going by our Nike’s Valuation, with an EPS estimate of around $3.58 and a P/E multiple of 28.2x in fiscal 2024, this translates into a price of $101, which is almost 7% 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 Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NKE Return 0% -13% 86%
 S&P 500 Return 3% 14% 144%
 Trefis Reinforced Value Portfolio 2% 6% 656%

[1] Returns as of 6/26/2024
[2] Cumulative total returns since the end of 2016

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