Nike: Running for Profits

05/07/2004 12:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

With just the ubiquitous check mark it uses in its advertising, Nike has become one of the best-known brand names in the world. It is also a favorite stock of Richard Moroney, editor of Dow Theory Forecasts . The stock is on the service's "Focus List" of top buys.

"With an attractive market position and a solid track record, Nike (NKE NYSE) is positioned to take advantage of rebounding athletic-shoe demand in the US while capitalizing on growth opportunities in Europe and Asia and making inroads into the soccer and golf markets. Nike is the world’s leading designer and marketer of athletic footwear, and a major seller of apparel and accessories. Nike, which sells to about 18,000 retailers in almost 200 countries, also operates its own retail stores. The company owns several other brands as well, including Cole Haan and Hurley. In 2003, Nike purchased Converse, a footwear company focused on retro styles. In the US, Nike has more than three times the market share of its nearest competitor, Reebok.

"A solid pipeline of footwear products should contribute to sales gains. The company has also repaired ties with its main US distributor, Foot Locker, after a long-running dispute over pricing and promotions. With basketball shoes among the top-selling categories, recent endorsement deals with two NBA stars, Carmelo Anthony and LeBron James, should give marketing efforts a boost. After struggling for many years, Nike Golf is finally gaining momentum, thanks in part to a multi-year deal with Tiger Woods. Nike is also increasing its presence in soccer, a sport important to international sales.

"Nike has reported encouraging results in recent quarters, and strong order trends suggest double-digit earnings growth will continue. In the February quarter, total revenue rose 21% to $2.9 billion, profits increased 61% to $200 million, and per-share earnings were up 57% to $0.74. Consensus estimates project the company will earn $3.47 per share in fiscal 2004 ending May and $3.95 per share in fiscal 2005. The company has outstanding scores in our proprietary Quadrix rating system—97 Overall, 95 in Quality, 94 in Earnings Estimates, and 87 in Financial Strength. Trading at 21 times expected fiscal 2004 per-share earnings of $3.47, Nike is reasonably valued. The stock is a long-term buy on our Focus List."

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