Analysts Raise Nike Estimates on Earnings Beat

Analysts Raise Nike Estimates on Earnings
Inside Nike in Boston

Analysts raised their full-year earnings estimates for Nike Inc. after the company delivered a better-than-expected financial result for the fourth quarter, driven by strength in U.S. and Western Europe sales.

The company beat the Street’s forecasts of diluted earnings per share of 75 cents and $7.34 billion in sales for the period. In the fourth quarter, Nike reported earnings per share of 78 cents and a 10.9 percent increase in sales to $7.43 billion.

Nike shares jumped more than 3 percent in extended-hours trading on Thursday following the earnings beat and were 2 percent higher at $78.4 in morning trading on Friday.

Camilo Lyon, an analyst at Canaccord Genuity, cited basketball and women’s as standout growth categories that are likely to continue driving the company’s growth in 2015.

“The resilient top-line strength in North America and Western Europe, coupled with early signs of traction in China, is encouraging and should help sustain demand trends,” Lyon said.

“All that said, implied 2015 EPS growth of approximately 11 percent looks to be mostly unchanged, but with a lower bias versus the previously stated ‘somewhat below mid-teens’ EPS growth, as expenses will continue to mount from direct-to-consumer and marketing investments,” he added.

Michael Binetti, an analyst at UBS, reiterated his “buy” rating on the stock based on Nike’s strong futures orders, improved outlook for the company’s China business and increasing pricing power.

“We believe ongoing price increases and a long-awaited turn in Nike’s high-margin China business will translate to EPS upside in fiscal 2015,” Binetti said.

“Solid pricing power and an accelerating China outlook should support EPS upside and can push return on invested capital to new highs and can continue to support Nike’s premium valuation,” he added.

Sam Poser, an analyst at Stern Agee, raised his full-year price target for the stock to $90, from $85, on expectations the company will gain further momentum in Western Europe as business in China rebounds.

“Nike is one of the very few large-cap consumer companies with the ability to grow EPS annually at a mid-to-high-teens rate. Nike’s size allows the company to invest heavily in the brand, solidifying its No. 1 position,” Poser said.

Nike’s ability to beat the Street’s expectations amid the challenging global retail environment is one of the reasons Morgan Stanley analyst Jay Sole expects the company to outperform its peers through 2014.

“Sales growth was broad-based across product categories, geographies and channels. North American earnings before interest and tax grew 14 percent in a quarter when U.S. retail likely experiences year-on-year earnings decline,” Sole said, noting that Nike’s global e-commerce grew 42 percent in the period.

“Some feared high World Cup-related spending would harm the quarter, but demand-creation expenses grew only slightly above our estimate,” he added.