Nike Rallies to All-Time High

Dow component Nike Inc. (NKE) is trading at an all-time high on Monday after beating Q2 2021 top and bottom line estimates by wide margins, posting a profit of $0.78 per-share on an 8.9% revenue increase to $11.24 billion. Digital sales surged an impressive 84%, continuing torrid growth that has accelerated in 2020 due to the pandemic. The company also raised 2021 revenue guidance, despite year-over-year physical traffic declines in most geographical regions.

Rapidly Growing Digital Sales

The loss of 2020 sports seasons weighed on investor sentiment into the summer months but greatly expanded e-commerce offerings have compensated for declining brick and mortar sales. The company now expects that half of total sales will come from digital channels by 2024 or 2025, highlighting the huge impact of the pandemic. Many of these sales are now bypassing third party sellers like Amazon.com Inc. (AMZN), allowing Nike to retain higher profit margins.

Telsey Advisory Group analyst Joseph Feldman raised his target to $175 on Monday, noting that Nike “delivered another strong quarterly performance, helped by its powerful digital business, strong product innovation, and robust membership engagement. Importantly, given the Q2 2021 beat on sales, the company raised its full year revenue outlook for a second consecutive quarter. The better-than-expected sales were fueled by growth in each geographic region, led by China (up 19%) and EMEA (up 12%), as well as digital growth of over 80%”.

Wall Street and Technical Outlook

Wall Street consensus is hugely bullish despite Nike’s high valuation, with a ‘Strong Buy’ rating based upon 26 ‘Buy’, 2 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $140 to a Street-high $176 while the stock has opened Monday’s U.S. session just $4 above the low target. This humble placement should offer plenty of upside through the first quarter of 2021, especially when vaccines lower the rate of COVID infections.

The stock completed a round trip into the January 2020 high at 106 in June and broke out of a cup and handle in August. That pattern yields a measured move target near 150 and the stock is trading just six points below that level on Monday morning.  It’s also gained more than 40% so far in 2020, making it a prime candidate for January tax selling pressure. Given those inputs, the best course of action may be to wait for a pullback before jumping on board.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Nike Spikes to Record High on Strong Earnings Beat; Buy with Target Price $176

The world’s largest athletic footwear and apparel seller Nike’s shares surged to an all-time high in extended trading on Friday after the company reported better-than-expected earnings in the second quarter and upgraded their full-year sales forecast.

Nike said its revenue increased nearly 9% to $11.24 billion in the second quarter ended November 30, beating analysts’ consensus of $10.56 billion. The footwear company said its profit jumped 12% to $1.25 billion, or 78 cents per share, higher than the Wall Street estimate of 63 cents per share. The company’s digital sales jumped more than 80%.

“We attribute Nike’s ability to navigate the pandemic well to its large owned and third-party e-commerce (now more than 30% of sales), strong demand for athletic gear during the virus, and the global strength of its brand, the source of our wide-moat rating on the firm. We expect to raise our per share fair value estimate of $107 on Nike by a mid-single-digit percentage but rate its shares, which have soared to all-time highs, as overvalued,” said David Swartz, equity analyst at Morningstar.

Following this release, Nike’ shares jumped about 6% to an all-time high of $144.95 in extended trading on Friday; the stock is up over 35% so far this year.

“While Nike’s outlook for the holiday season and the rest of its fiscal year is clouded by the pandemic, its guidance for fiscal 2021 revenue growth in the low teens is in-line with our prior 13% forecast. Moreover, the apparent efficacy of the vaccines provides hope that store disruptions will abate within a few months,” Morningstar’s Swartz added.

Nike Stock Price Forecast

Twenty-eight analysts forecast the average price in 12 months at $151.61 with a high forecast of $174.00 and a low forecast of $115.00. The average price target represents a 10.44% increase from the last price of $137.28. All those 28 analysts, 26 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $176 with a high of $325 under a bull-case scenario and $85 under the worst-case scenario. The firm currently has an “Overweight” rating on the athletic footwear and apparel company’s stock.

“Reiterate bullish outlook on Nike’s faster 1H21 snapback & mgmt’s accelerated L-T plan. Valuation exceeds historical highs, but out-year revenue forecasts maybe $1-3B+ too low, implying underestimated earnings power. Positive EPS revisions could continue to drive the stock higher; lift PT to $176,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Barclays raised the target price to $174 from $150. BTIG upped the stock price forecast to $162 from $152. Jefferies increased the price objective to $140 from $117. Credit Suisse raised the target price to $162 from $160. JP Morgan upped the target price to $170 from $146. Piper Sandler increased the stock price forecast to $168 from $153.

We think it is good to buy at the current level and target $176 as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“Nike is in the early innings of transition from a wholesaler to a DTC brand. Success would make it one of few to benefit from the shift to eComm (~15% of ‘20 sales). Its DTC business (~33% of ‘20 sales) should ignite its next phase of margin-accretive revenue growth, driving a 28%+ 5Y EPS CAGR,” Morgan Stanley’s Kimberly Greenberger added.

“Nike also stands to benefit from advancing global consumer activewear demand (due to the WFH-induced preference for comfort-oriented apparel/footwear and increased focus on health & wellness). Nike’s strategic portfolio decisions, tech investments, and supply chain innovation also creates LT competitive advantages, and are further supported by an industry-leading balance sheet.”

Upside and Downside Risks

Risks to Upside: 1) Faster global activewear market growth. 2) Faster 2H20 wholesale restart. 3) DTC strategy acceleration Market share gains. 4) Supply chain innovation. 5) Sustainable NA segment growth. 6) Better-than-feared COVID-19 impact/potential recession – highlighted by Morgan Stanley.

Risks to Downside: 1) Tariff risk. 2) Competitive risk (ADS). 3) China/international macroeconomic slowdown. 4) NA declines. 5) FX headwinds. 6) ESG mismanagement. 7) Worse-than-feared COVID-19 impact/potential recession.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Lennar, FedEx, Darden Restaurants and Nike in Focus

Earnings Calendar For The Week Of December 14

Monday (December 14)

No major earnings scheduled for release.

However, it is worth noting HEXO Corp, a Canada-based company that creates and distributes products to serve the Canadian cannabis market, will release its financial results for the fiscal first quarter 2021 on Monday before the stock market opens.

Hexo earnings will provide a direction for the emerging cannabis industry. Failing to grow on earnings and revenue after consolidation, will lead to a worse stock dilution scenario for the company. Hexo’s statement will test market sentiments on Monday for the higher-risk, higher-reward cannabis sector.

Tuesday (December 15)

Ticker Company EPS Forecast
SHB Shaftesbury -£1.52
NDSN Nordson $1.53
HOCPY Hoya Corp $0.74

 

Wednesday (December 16)

IN THE SPOTLIGHT: LENNAR

LENNAR: Lennar, a home construction and real estate company, is expected to report a profit of $2.35 in the fourth quarter, up from $2.13 per share seen in the same quarter a year ago, which would indicate a positive year-over-year growth rate of more than 11%.

According to Zacks Research, equity strategists forecasts full-year earnings of $7.46 per share for the current financial year, with EPS estimates between $7.39 to $7.53. For the next financial year, strategists expect the company will post earnings of $7.97 per share, with EPS estimates between $6.30 to $9.42.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 16

Ticker Company EPS Forecast
TTC Toro $0.49
ABM ABM Industries $0.70
MLHR Herman Miller $0.57
MU Micron Technology $0.70
AUOTY AU Optronics $0.09

 

Thursday (December 17)

IN THE SPOTLIGHT: FEDEX

FedEx, the world’s leading express delivery company, is expected to report a profit of $3.93 in the second quarter, down from the previous $4.87. The company has a decent earnings history as its bottom line outshined the consensus mark in two of the trailing four quarters and missed the same in the remaining two. The average beat is 37.7%, according to Zacks Investment Research.

The continued surge in e-commerce demand during the current coronavirus-ravaged times is likely to have boosted revenues in the to-be-reported quarter. With the pandemic largely restricting people to their homes, the need for door-to-door delivery of essentials during this unprecedented crisis is rising, according to Zacks Investment Research.

“E-commerce trends remain robust, which should support results, but the bar is much higher too. All eyes will be on two major areas: (1) more evidence of the breaking wave that could set up a challenging F2H21/2022 and (2) what is peak season going to look like as we have even less visibility than usual,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect a beat for F2Q21 vs. current consensus. We are modelling EPS of $4.09 (adj for TNT integration costs), 10% above cons. of $3.73. Our FY21 EPS of $17.80 is slightly below our prior est. of $18.08 but is 12% above cons. of $15.89 (all adj. for TNT integration costs for comparability). The main drivers of the beat are a continued strong pricing environment in Express International esp. in Freight as well as more a more spread out peak season in Ground as retailers attempt to avoid service breakdowns and surcharges. This will benefit volume and F2Q results at the cost of pricing and F3Q results, in our view,” Shanker added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 17

Ticker Company EPS Forecast
WB Weibo $0.62
ACN Accenture $2.05
GIS General Mills $0.97
JBL Jabil Circuit $1.27
SAFM Sanderson Farms -$0.03
WOR Worthington Industries $0.69
RLAY Relay Therapeutics Inc. -$0.32
ASEKY Aisin Seiki Co $0.42

 

Friday (December 18)

IN THE SPOTLIGHT: DARDEN RESTAURANTS

Darden, which operates full-service restaurants in the United States and Canada, is expected to report a profit of $0.71 in the second quarter, up from the previous $0.56. The Orlando-based multi-brand restaurant operator has set its Q2 2021 pre-market guidance at 0.65-0.75 EPS.

“Darden will report 2Q21 (November) results on December 18th, before market open. We model adjusted EPS of $0.68, below the midpoint of $0.65 to $0.75 guidance and$0.73 consensus, though our below-consensus positioning is not purposeful. Compared to consensus, we model lower restaurant-level margins of 18.9% vs 19.4% Consensus Metrix, which is partially offset by our lower G&A estimate,” said Andrew M. Charles, equity analyst at Cowen and Company.

“We model a revenue decline of 17.5%, which compares to the guidance of -18% total revenue and Consensus Metrix -17.1% and contemplates Olive Garden and Longhorn same-store sales -15% and -10% vs Consensus Metrix -16% and -11%, respectively. At the time of the1Q21 earnings release, Darden indicated that the company was running modestly ahead of-18% guidance and the guidance contemplated 100 bps of headwind from the Thanksgiving calendar shift. We believe what looked like conservative sales guidance when issued in September now looks fair. Indeed, we point to the stability of sales suggested by industry data from September through November, commentary from Mr. Manocha around dining rooms restrictions helping to transfer sales to off-premise channels, and Darden’s lack of third-party delivery availability amid November’s rise in COVID-19 cases/dining room capacity restrictions,” M. Charles added.

IN THE SPOTLIGHT: NIKE

Nike, the largest seller of athletic footwear and apparel in the world, is expected to report a profit of $0.62 in the second quarter, down from the previous $0.95.

“A faster North America wholesale restart, transitory GM benefits, SG&A control, & lean inventory suggest 2Q upside. Valuation nears highs, but Nike’s more promising revenue and margin outlook post-COVID-19 should continue to drive the stock higher. Lift price target to $165,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

“Further, despite Nike’s valuation nearing the upper end of its historical range (37x 2022e consensus P/E vs. 19-38x historical range) as well as its impressive YTD stock run (+35% vs. S&P 500 +14% as of 12/4), we see room for additional share price appreciation on 1) positive EPS revisions on potential upside surprise to the upcoming quarter as well as against management’s seemingly conservative full year (May-21 year) guidance (as outlined in our four key points below), 2) Nike’s relevant exposure to activewear, one of the fastest-growing footwear & apparel categories, a trend which has only been accelerated by COVID-19, and should remain an ongoing tailwind, and 3) Nike’s accelerated shift to its DTC channel, and in particular eCommerce, which should enhance its long-term revenue, margin, and EPS growth,” Greenberger added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 18

Ticker Company EPS Forecast
DRI Darden Restaurants $0.71
NKE Nike $0.62
CUK Carnival -$1.88
CCL Carnival -$1.88
CCL Carnival -£1.43

 

Nike Fails Second Breakout Attempt

Dow component Nike Inc. (NKE) opened at an all-time high on Monday in sympathy with COVID recovery plays and sold off, failing a breakout above the September high near 130. The turnaround wasn’t a surprise because the failure of professional sports teams to fill stadiums has weighed on fourth quarter performance, even though NFL TV ratings have shown excellent resiliency compared to MLB and NBA misfires.

Professional Sports Weighing on Nike

The turnaround reinforces a holding pattern in place since September and the uncertain impact of the pandemic’s second wave this winter. Everyone hopes that 2021 soccer and baseball seasons proceed on schedule and the 2021 Tokyo Olympics gets off the ground but it could take more than a vaccine to get that accomplished. Even so, Nike is doing a great job building market share through direct e-commerce sales, which have underpinned revenue since the first quarter.

RBC analyst Kate Fitzsimons initiated Nike coverage with an ‘Outperform’ and $145 price target on Thursday, noting “We see NKE as a best-in-class global athletic play, with its Consumer Direct Acceleration strategies supporting a multi-year mid-high teens EPS CAGR through FY26. While shares at 35x earnings suggest that NKE’s strong fundamentals are well appreciated, we believe FY21/22 can see EPS upside as recovery from COVID-related disruption comes through faster and as gross margin comes in better.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 24 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $115 to a Street-high $165 while the stock opened Thursday’s U.S. session nearly $20 below the median $146 target. This placement should offer plenty of upside in reaction to news that brightens the light at the end of the pandemic tunnel.

The stock broke out above the first quarter high at 105.62 in August, triggering a rapid advance into the low 130s in September. October and November breakout attempts have now failed, adding to bearish weekly and monthly relative strength readings. Accumulation peaked in September and has posted two lower highs since that time, raising odds for a decline that fills the unfilled portion of Sept. 23 gap between 117 and 119.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Set To Open Higher As Nike Smashes Earnings Estimates

Nike Easily Beats Earnings Estimates

S&P 500 futures are up in premarket trading as traders cheer great results from Nike which beat estimates on both earnings and revenue.

Nike reported revenue of $10.6 billion and GAAP earnings of $0.95 per share which were much higher than the analyst consensus which called for revenue of $9.15 billion and earnings of $0.48 per share.

Nike achieved strong growth in its online sales and managed to offset the negative impact of the coronavirus pandemic. Not surprisingly, Nike shares are gaining more than 10% in premarket trading and look ready to open at all-time highs.

Tesla Set To Open Lower As ‘Battery Day’ Failed To Live Up To High Expectations

Tesla shares are down by about 5% in premarket trading as investors were disappointed to hear that they will have to wait several years for new batteries.

In addition, Elon Musk did not offer any specific guidance on the cost and the driving range of the new batteries.

He stated that Tesla could produce a $25,000 car that would be ready to compete with comparable gasoline cars in three years, but investors clearly wanted him to be more specific.

Tesla shares are up more than 400% year-to-date so it was really hard to live up to such high expectations. That said, a continuation of correction in Tesla shares may put some pressure on investor mood in other high-flying tech stocks.

All Eyes On PMI Reports

Today, the U.S. will provide flash readings of Manufacturing PMI and Services PMI for September. Manufacturing PMI is expected to stay unchanged at 53.1 while Services PMI is projected to decline from 55 to 54.7.

PMI reports from other parts of the world indicated that the market should be ready for a negative surprise on the services side. In Euro Area, Services PMI declined from 50.5 in August to 47.6 in September.

Numbers below 50 show contraction so it is clear that Euro Area services segment is already suffering from the second wave of coronavirus. In the UK, Services PMI declined from 58.8 to 55.1.

If the U.S. Services PMI report is better than expected, stocks may get additional support. In the opposite case, the market may find itself under pressure due to worries about the sustainability of economic recovery.

For a look at all of today’s economic events, check out our economic calendar.

Nike Swooshes Higher After Digital Sales Soar

NIKE, Inc. (NKE) shares soared 13% in extended-hours trading Tuesday after the athletic footwear and apparel giant reported a surge in quarterly online sales and remained upbeat about growing demand throughout the upcoming holiday season.

The company posted fiscal Q1 adjusted earnings of 95 cents per share, almost double the Street’s forecast of 48 cents a share. Meanwhile, revenue of $10.59 billion came in comfortably ahead of the $9.15 billion figure analysts had expected. Furthermore, the company also lifted its fiscal full-year outlook. It now expects sales to register in the high single digits to low double digits from the previous year.

Through Tuesday’s close, Nike stock has a $182 billion market cap, yields 0.86%, and trades 16% higher on the year. Over the past three months, the shares sport a 17.69% gain as of Sept. 23, 2020. From a valuation standpoint, the stock looks pricey. It trades at about 47 times projected earnings – 67% above its five-year average multiple of 28.34 times.

Digital Sales Spike

Nike’s Q1 digital sales, which account for roughly 30% of its total quarterly revenue, jumped 82% from a year earlier and 75% from the previous quarter as more shoppers purchased gear online during the pandemic. “We know that digital is the new normal. The consumer today is digitally grounded and simply will not revert back,” CEO John Donahoe told investors during the conference call. In recent years, the company has invested heavily in its website and mobile apps as more consumers move away from department stores and shopping malls.

Wall Street View

Bank of America expects Nike to continue benefiting from consumers’ shift to more solitary leisure activities. “We believe COVID-19 is accelerating the consumer spending shift away from traditional entertainment (e.g. amusement parks, movie theaters, & tourist attractions) and international travel to solitary leisure activities (bicycling, golf, marine, hiking, camping),” the investment bank said in a note cited by Investor’s Business Daily.

Sentiment elsewhere on Wall Street also remains bullish. The stock receives 23 ‘Buy’ ratings, 3 ‘Overweight’ ratings, 4 ‘Hold’ ratings, and 1 ‘Underweight’ rating. Analysts have an average 12-month price target on the stock at $126.07 – nearly 8% above yesterday’s $116.87 close.

Technical Outlook and Trading Tactics

Nike shares have continued trending higher after breaking above multiyear resistance in mid-August. Moreover, aftermarket data indicates the stock will open above $132 Wednesday, taking its price to an all-time high (ATH).

Given the recent runup into the company’s quarterly earnings, don’t be surprised to see profit-taking over the mid- to short-term as traders take some money off the table. Instead of chasing the price, look for a retracement entry back to $105, where previous resistance now acts as support.