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