Buy Nike Stock After Lululemon's Blowout Earnings?
Nike is set to report its first quarter fiscal 2022 financial results on September 23 and it appears like it might be worth buying...
Nike NKE posted stellar Q4 results in late June that sent the stock soaring to new highs. The sportswear titan’s smaller rival Lululemon LULU then posted blowout quarterly results on September 8 that helped show the industry is thriving as people continue to dress more casually than ever.
Nike is set to report its first quarter fiscal 2022 financial results on September 23 and it appears like it might be worth buying.
Strong Performance to End FY21
Nike’s Q4 sales jumped 96% against the year-ago quarter and 21% compared to the pre-pandemic period in Q4 FY19. The company also swung from an adjusted loss of -$0.51 a share to +$0.93 to crush Zacks adjusted EPS estimate by 82%. The impressive showing helped alleviate many of Wall Street’s supply chain worries and any fears consumers would change their preferences as the economy reopened.
The company’s margins climbed as its direct-to-consumer push gains momentum, with Nike Direct sales soaring 73%. “FY21 was a pivotal year for NIKE as we brought our Consumer Direct Acceleration strategy to life across the marketplace,” CEO John Donahoe said in prepared remarks.
“Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for NIKE’s long-term growth.”
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Nike’s fiscal 2021 sales surged 19% to bounce back from its slightly-covid-hit FY20 (down 4.4%). Last year’s growth marked NKE’s best in decades and the expansion train appears to be rolling. Zacks estimates call for NKE’s adjusted Q1 earnings to climb 18% on 19% higher revenue.
Looking further ahead, Nike’s FY22 revenue is projected to climb 12.4% to $50 billion, with FY23 set to come in another 10% higher. Both these estimates come on top of FY21’s historic growth and would mark its strongest top-line expansion since 2012 (outside of last year).
The sportswear giant’s adjusted EPS figures are projected to climb by 21% in FY22 and another 16% next year. Nike has also crushed our bottom-line estimates by an average of 56% in the trailing four quarters and it’s experienced solid positive earnings revisions to help it land a Zacks Rank #2 (Buy) right now.
Despite Lululemon’s growing popularity, a resurgent Adidas ADDYY in North America, and the rise of upstart e-commerce-focused brands, Nike remains the champion of global sportswear. NKE has thrived because of its ability to create trends, constantly adapt, and attach the Swoosh to the biggest sports, athletes, and cultural icons.
Nike has also invested in the future through multiple shopping apps and a massive, diverse digital marketplace. Plus, the broader industry is strong at the moment, with the Shoes and Retail Apparel space in the top 9% of over 250 Zacks industries.
NKE stock is up 26% in the last three months and 45% in the last year to outpace the S&P 500. But a recent pullback has it trading around 5% below its records at roughly $164 a share.
Its small drop pushed it below neutral RSI levels (50) at 47 and it’s currently trading near its year-long lows at 35.7X forward 12-month earnings. And Nike’s dividend yield sits at 0.67%.
Some investors might want to wait until after Nike reports its first quarter results and provides updated guidance before they even consider buying. But those with long-term horizons might want to add NKE as part of a well-diversified portfolio.
Wall Street remains high on the stock, with 17 out of the 22 brokerage recommendations Zacks has at “Strong Buys,” with three more “Buys,” and none below a “Hold.”
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