Dow component Nike Inc. (NKE) is trading higher by less than 1% on Tuesday morning in reaction to positive analyst commentary, just two days before the sport apparel giant reports Q2 2021 (Feb) earnings. Professional market watchers are looking for a mixed quarter, with a profit of $0.75 per-share on $10.98 billion in revenue. If met, earnings-per-share (EPS) will mark a slight profit decrease compared to the same quarter in 2020.
Sports’ Return to ‘Normalcy’
2020 revenue suffered from the shutdown of sports venue but Nike used the opportunity to sharply expand its digital footprint, growing a direct sales channel that’s been wildly successful. And we’ve now entered the countdown to sports ‘normalcy’, with packed stadiums and broadcast ratings that should benefit all tiers of the company’s product line. In addition, it can finally get back into the highly-profitable business of sports celebrity endorsements.
Pivotal Research Group analyst Mitch Kummetz cited tight inventory control in his comments, noting, “we are lowering our sales forecast but raising our EPS estimate. We are lowering our sales forecast for two reasons. First, Europe was worse than expected, due to draconian COVID restrictions. Second, we don’t believe that athletic footwear was as strong as last quarter, partly due to a shift in demand to boots. On earnings, we are raising our estimate for one simple reason: better-than-expected GM. In short, promotions were minimal, due to lean inventory.”
Wall Street and Technical Outlook
Wall Street consensus is solid as a rock, maintaining a ‘Buy’ rating based upon 25 ‘Buy’, 3 ‘Overweight’, 3 ‘Hold’, and 1 ‘Underweight’ recommendation. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $140 to a Street-high $185 while the stock is set to open Tuesday’s U.S. session just $5 above the low target. Weak 2020 earnings have impacted this placement but Nike is still trading near an all-time high.
The stock broke out above 2015 resistance in the upper 60s in 2018 and entered a strong uptrend that stalled just above 100 in the first quarter of 2020. The steep pandemic decline tested new support successfully, ahead of a V-shaped recovery wave that mounted resistances in August. The uptrend stalled at 144 in December, giving way to rangebound action that’s generated unusual selling pressure. This aggressive distribution lowers odds for an advance to new highs.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.