Nike Is Returning To Double-Digit Earnings Growth

Even with a sluggish U.S. retail market dragging it down, Nike Inc (NYSE: NKE) stock still managed to deliver a 20 percent gain for investors in the past year. Now that analysts see signs of stabilization in the U.S. athletic apparel market, Nike has several positive catalysts that could drive the stock to new highs in 2018.

As of the most recent quarter, Nike was still struggling to produce growth in North America, reporting a 5 percent decline in North American revenue. However, following Buckingham Research Group’s most recent round of channel checks, analyst Eric Tracy is optimistic.

“Based on our industry channel checks, [North American] athletic cyclical pressures appear to be bottoming, with excess inventory cleared,” Tracy says.

Nike investors may finally be able to shift their attention away from the landscape and back to Nike’s best-in-class balance sheet and business execution. Tracy sees several bullish catalysts ahead for Nike, including international expansion, a fresh family of product roll-outs and Nike’s ongoing manufacturing improvements, code-named “ManRev.” Tracy says the ManRev initiative could reduce Nike’s product creation time by 50 percent within five years.

In addition, Nike has been beefing up its direct-to-consumer offerings, and Tracy says DTC and international sales should help widen margins in 2018. Nike has even entered into strategic partnerships with (AMZN) and subscription box retailer Stitch Fix (SFIX) to test new, innovative ways to reach today’s shoppers.

Tracy says a stable U.S. market should allow Nike to grow its earnings per share at a mid-teens rate over the next five years. Nike reported an EPS decline of 8 percent in the most recent quarter.

“Our checks … suggest consumer demand for performance-driven product is re-emerging, historically correlating to multi-year NKE revenue strength,” Tracy says.

Buckingham is forecasting fiscal 2018 EPS of $2.28, mostly in-line with consensus estimates. Tracy says Nike earnings will begin to ramp up in fiscal 2019, and he anticipates full-year fiscal 2019 EPS of $2.76 compared to consensus estimates of $2.67.

From a value perspective, Nike stock is currently priced…

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