After a bumpy road for most of 2017, Nike Inc (NYSE: NKE) stock has come on strong with a 20 percent gain the past three months. As Nike prepares to report its fiscal second-quarter earnings Dec. 21, Argus analyst John Staszak says the company is well-positioned to continue its bullish momentum.
Argus has upgraded Nike stock to “buy” and set a $75 price target for the stock. Staszak says Nike’s powerful brand and pricing power are a formidable one-two punch for investors in a shaky North American retail environment.
“We think some retailers seeking to boost weak sales are turning to Nike to increase customer traffic, increasing its bargaining power as a supplier,” Staszak says.
Nike has been adjusting its business strategy in recent quarters to adapt to the changing retail environment, emphasizing more direct-to-consumer sales. Nike has beefed up its online business, and Argus estimates that Nike will grow its direct-to-consumer revenue by double digits for at least another two years.
Staszak says Nike will continue dealing with fierce competition from Adidas, Under Armour (UA, UAA) and other athletic apparel rivals. Nike’s innovative products, massive scale and popularity in emerging markets, however, give the company a tremendous advantage.
“Over the long term, we expect Nike to continue to dominate the athletic apparel and footwear market, and note that it has a particularly strong presence in high-end footwear, thanks to its marketing strength and endorsements from famous athletes,” Staszak says.
From an investment standpoint, Staszak says Nike’s balance sheet is healthy, it plans to continue to return between 25 and 35 percent of its cash flow to shareholders via dividends and its stock is trading at a reasonable valuation. Over the past five years, Nike’s price-earnings ratio has ranged from about 15 to about 30. Although its current P/E of 25 is slightly above the middle of that range, Staszak says…
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