Question

For your company Nike:

1. Outlook, Summary and Conclusions
2. 1. Outlook for performance (investment potential, credit assessment, etc.)
   2. Strengths
   3. Weaknesses
   4. Summary and Conclusions

(Can be answered in bullet points (3 minimum))

Answer 1

Oregon-based Nike (NKE) is one of the most recognized brands across the globe. The company, founded in 1964 as Blue Ribbon Sports, is still going strong even today. Known for its iconic slogan—"Just Do It"—Nike is the largest supplier of athletic apparel and footwear. It also designs, manufactures, and markets its own line of sports equipment as well. Nike has a series of brand names under its banner including Air Jordan, Nike Golf, and Nike Pro, as well as several subsidiaries such as Converse and Hurley International.

The company calls itself a “growth company,” which is a strong message about its attitude and intention. If Nike can live by that motto and continue with the momentum, its investors will surely be pleased. The company had a market capitalization of $143.6 billion as of February 2020.

Financials

Things have been going well for Nike. Fiscal 2019 ended with $39.1 billion in revenue. That's a 7% increase from the previous year, which saw revenue come in at $36.4 billion. On a currency-neutral basis, the rise was 11% from the previous fiscal year.

Converse and Hurley are Nike’s core subsidiary brands. Converse designs, markets and distributes athletic lifestyle apparel, footwear, and accessories. Hurley, on the other hand, designs, markets, and distributes surf and youth lifestyle footwear, apparel, and accessories. Market transitions to direct distribution in AGD and strong growth in the United States pushed revenue for Converse to $1.9 billion, up 3% on a currency-neutral basis from the previous fiscal year.

Excluding the revenue from Converse, Nike’s revenue was $37.2 billion. Geographically, Nike's revenue for the 2019 fiscal year was broken down as follows:

North America: $15.9 billion or 42% of total revenue
Europe, Middle East, Africa: $9.8 billion or 26% of total revenue
Greater China: $6.2 billion or 17% of total revenue
Asia Pacific, Latin America: $5.2 billion or 14% of total revenue
The company’s net income increased to $4 billion compared to $1.93 billion from the 2018 fiscal year. This represents a 108% increase due primarily to growth in revenue, an expansion of the company's gross margin expansion, and a lower effective tax rate. As such, the company's board of directors approved an increase to its annual dividend, raising it from 88 cents to 98 cents per share. That translates to an increase from 22 cents to 24.5 cents per quarter for each share.

Nike's income statement also reflected an increase in its earnings per share (EPS), which rose by 114% to $2.55 in FY 2019 from $1.19 in FY2018.

What Investors Should Know

Some of the things investors should be aware of that impact Nike's financial and its stock include currency fluctuations, consumer tastes, geopolitical tensions, new technology, and personnel among others.

Analysts agree, though, that Nike is poised for continued growth, which should have an impact on the company's share price. That's because it is consistently focused on product and marketing innovation. The company remains committed to upgrading its digital footprint through its Nike Direct business, through which the company sells and launches new products online and also makes improvements to its supply chain.

Nike’s focus on brand recognition and growth via endorsements, along with investments in research and development (R&D) and demand generation, should continue to pay off. Additionally, the growing middle class in emerging markets, as well as greater China, should keep the demand for its products growing.

There may be a few hiccups, though. In October 2019, the company announced that its chief executive officer (CEO) Mark Parker, who led Nike since 2006, was stepping down, handing over the reins to John Donohoe. Donohoe was on Nike's board of directors and served as president and CEO of cloud computing company ServiceNow.

China is another key factor investors should keep an eye on. Because it is one of the company's largest growth markets, any detrimental news out of the country could have a big impact on share prices. For example, the stock took a hit after the company announced it had to shut down half of its stores in the country in February 2020 because of the coronavirus outbreak. The company reduced the hours at its other locations in China because of lower foot traffic.

The Bottom Line

Nike may be a sound stock supported its steady stock performance and growth in earnings per share, revenue and net , strong record , and management approach. But there's no risk-free stock—not even Nike. A slowdown in China, currency movement and growing competition are always concerns that would put a dent within the company's growth numbers. Although the positives should outweigh the negatives, the stock could seem expensive, especially when it trades around its 52-week high. there's potential within the company to justify those levels, but it might be knowing let it take a breather before you choose this sporting stock.

Outlook

Nike earnings growth has been strong recently, though susceptible to ups and downs. It's focused on innovation and boosting margins. Its Nike Direct business has also been performing well. International growth has been solid.

In February Nike said it had temporarily closed about half its stores in China due to coronavirus, with the stores that remained open operating with reduced hours and seeing lower-than-expected retail traffic.

But in its May 14 business update, Nike said China and South Korea are doing well, with 100% of stores open. additionally , 95% of stores ran by partners were also running again.

The firm has also been returning within the key U.S. and European markets, though the pace isn't uniform.

Nike was dealt another blow when it had to shut stores amid widespread looting connected to the George Floyd protests in cities across the country.

German rivals Adidas and Puma had previously warned the coronavirus epidemic was hurting their sales in China.

Sports Leagues Return, Olympics Canceled

Sports leagues were pack up within the U.S., Europe and lots of other parts of the planet amid the coronavirus crisis. The 2020 Tokyo Olympics was also pushed back to 2021. of these sporting events are major sales drivers for Nike and its peers. Meanwhile, schools and colleges were closed, halting their popular competitions also .

But sport is gradually returning. Major soccer leagues are finishing their seasons, with Germany's Bundesliga, Spain's La Liga and therefore the English Premier League all making returns. The UEFA Champions League restarts August 7th. Meanwhile, the U.S. Open tennis tournament is slated to require place in ny at the top of August. The PGA Tour has also restarted.

Among major American sports, the NBA Board of Governors has approved a 22-team playoff format, with the top of the regular season starting July 31st. The NHL has announced 24-team playoff format. Training camp is about to start out no before July 1st. a selected date is yet to be confirmed. MLB has yet to verify a start date with owners said to be pushing for early July.

Nike Stock Analysis

Nike stock sold off within the coronavirus stock exchange correction. But it rallied strongly, and has now formed a cup with handle base. the perfect buy point is 104.79 MarketSmith analysis shows.

The fact Nike stock is trading above its 50 and 200-day lines may be a bullish sign, while the very fact the 50-day moving average looks set to mount the 200-day is additionally encouraging.

The relative strength line didn't fall too badly during the stock exchange crash, but after rebounding well, it's been struggling to form good headway. The RS line tracks a stock's performance vs. the S&P 500 index.

The RS line, the blue line within the charts provided, shows it's on the brink of reaching all-time highs set in late 2015. But on a longer-term basis, the RS line for NKE stock has been moving sideways for an extended time.

China Key For Nike Stock

Nike is that the footwear market leader in China, with the recognition of the NBA within the country acting as a key tailwind. it's been building on this success. within the most up-to-date quarter, Greater China sales pole-vaulted 20% to $1.85 billion.

"The NBA is China's hottest sports league and is sixfold more popular than the three largest European soccer leagues combined," Cowen director John Kernan previously told IBD. "Basketball's popularity should disproportionately benefit Nike over other brands, as Nike is now the league's official sponsor and endorses most of its top players. Nike has a huge growth profile in China due to basketball."

But the coronavirus's impact on China's economy and therefore the NBA season suspension will hurt Nike sales there, although the return of basketball might be a catalyst. China's sharp recession is additionally a worry for Nike.

Nike Earnings Rebound

Nike stock features a strong IBD Composite Rating of 90. The IBD Stock Checkup tool shows earnings are good, though almost ideal. Over the past three quarters Nike earnings have grown by a mean 26%. this is often just above the CAN SLIM benchmark for 25% growth for this metric. But longer-term the image has not been as rosy. Over the past three years EPS growth has came in at a weak 7%.

In the short term, Nike was hurt by a tenth EPS decline in its fiscal Q4 2019, as Nike earnings missed analyst estimates for the primary time in seven years. But Nike earnings rebounded with 28% growth in Q1 2020, followed by a 35% gain in fiscal Q2 and smaller growth of 15% in fiscal Q3.

Revenue growth has been spotty, up from 4% to 7% to 10% then to five over an equivalent span.

Analysts now expect Nike earnings to fall 13% in fiscal 2020, reflecting the coronavirus. But Wall Street is depending on a 22% gain in 2021.

Modest growth is OK for a big-cap giant during a mature, competitive market, but investors generally should search for companies with earnings and revenue growth of 25% or more.

Nike earnings outlook

Nike digital sales are growing rapidly, and management sees acceleration. the corporate also wants to reshape its presence within the digital marketplace over the future , so Nike is connecting with customers through both its own digital offerings and thru those of its retail partners.

This is looking especially prescient given the quantity of individuals , both within the U.S. and round the world, who are forced to remain reception amid the coronavirus crisis. Nike has been offering premium content on its Nike Training Club app as a sweetener to those forced to exercise reception . Users also are to get workout gear through the app, which acts as an extra booster to sales.

Last November, Nike said it might stop selling a limited product assortment on to Amazon.com (AMZN). The pilot program began in June 2017, but analysts said Amazon did not eliminate fakes. Nike said it wanted to specialise in "more direct, personal relationships" with customers.

After shedding its partnership with Amazon, Nike is doubling down on its own website, also as its work with trusted retail partners. the corporate already rakes in around 30% of annual sales from its own direct-to-consumer business.

New Nike CEO Takes Charge

There was an enormous shake-up at the Dow Jones giant when CEO Mark Parker, who had led Nike since 2006, stepped down in January. He handed over the reins to John Donahoe, who had been CEO of ServiceNow (NOW).

Before leading ServiceNow, Donohoe was chairman of PayPal (PYPL), and from 2008 to 2015 he was president and CEO of eBay (EBAY). He was also CEO of Bain & Co. from 1999 to 2005. Analysts have widely praised the appointment.

Parker's exit was announced soon after Nike's controversial Oregon Project closed down. Parker had backed the long-distance running program's head coach, Alberto Salazar, who was banned for four years earlier in October after being found guilty of doping violations. Parker remains executive chairman of the corporate .

Donohoe has already made a mark by reshuffling senior management. Former CFO Andy Campion, who had held the role since 2015, has become chief operating officer. Matthew Friend took his place as CFO.

Heidi O'Neill, former president of Nike Direct, now leads the company's consumer business. Campion and O'Neill moved into their new roles April 1.

Big Money Buys Nike

Another key piece of the CAN SLIM investing jigsaw is institutional ownership. Nike stock boasts eight consecutive quarters of accumulation by big fund managers. One notable backer is that the Fidelity Contrafund, which holds 7.6 million shares. It increased its stake within the most up-to-date quarter. Nike stock features a solid Accumulation/Distribution Rating of B-. the general number of institutional shareholders now stands at 30% of Nike stock ownership.

While the Fidelity Contrafund may be a holder, Fidelity itself is merely the fourth largest owner of Nike stock, with 28.7 million shares in total., or 2.3% of all Nike stock. It sits behind SSGA Funds, which holds 4.7% of all Nike shares and BlackRock, which holds 4.8%. the most important holder at the instant is mutual fund giant Vanguard, whose 101.3 million shares represents 8.3% of Nike stock.

Analysts Back Nike Stock

Raymond James analyst Matthew McClintock was rating Nike stock as outperform with a 115 target. He said the Dow Jones stock has demonstrated "ample demand for strong, innovative product within the marketplace," even amid the coronavirus crisis.

He pointed to the firm's "timely digital investments," which he said has allowed it to flourish even amid the challenging environment

"(Nike) is one among the best-positioned long-term brands and will be ready to navigate the present climate with strong brand momentum, financial flexibility, and digital leadership," he said during a June 17 research note.

Meanwhile, CFRA analyst Camilla Yanushevsky told IBD her risk assessment for Nike stock is low, citing its "strong financial and operating metrics." Moreover, she predicted Nike will rebound faster than other stocks.

"For us, (the coronavirus outbreak) is an intermittent setback and investors shouldn't lose sight of the larger picture," she said. "We think NKE are going to be one among the swiftest securities to recover when the outbreak settles, given its dominant market share and (CEO John) Donahoe's plans to refine NKE's operational model (partnerships & distribution) toward consumer-centric Direct, which we see delivering even greater competitive differentiation and long-term value creation."

Nike Stock isn't A Buy

New Nike CEO Donahoe features a long resume in developing digital sales and payments. and therefore the company appears confident in its own digital offerings after canceling its Amazon deal.

If an investor is confident within the firm's strategy to specialise in digital, snatch share in women's apparel and grow its international business, then it's worth adding to a stock watchlist.

Nike stock has regained most its losses after being beaten down badly amid the growing coronavirus crisis. But the impact isn't yet over. Not only has the virus decimated the worldwide sports calendar, but a second wave could lead on to leagues closing again even as they return.

Weaker demand in China and potential production issues could weigh down Nike's business for a few time. And while the U.S. and Europe are looking to recover from severe recessions thanks to the Covid-19 pandemic, how quickly will consumers recover?

Even before the coronavirus crisis, NKE stock had not been outpacing the S&P 500 index. And while it's close, Nike stock has yet to push past its latest buy point.

The Business

Nike, along side its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services. the corporate is that the largest seller of athletic footwear and apparel within the world. It focuses its Nike Brand product offerings on eight key categories: Running, Basketball (including the Jordon brand), Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear, and Golf. It also markets products designed for youngsters , along side other recreational uses, including cricket, lacrosse, walking, and wrestling. As of May 31, 2014, Nike had roughly 56,500 employees worldwide. the corporate was founded in 1964 and is headquartered in Beaverton, Oregon.

Nike sells its products through retail accounts, Nike-owned retail stores, internet websites, and independent distributors and licensees throughout the planet . Nearly all of Nike’s footwear and apparel products are produced outside the us , while equipment goods, including bags, socks, sport balls, eyewear, timepieces, bats, and golf clubs, are produced both domestically and abroad.

Stock Price Forecast

The 29 analysts offering 12-month price forecasts for Nike Inc have a median target of 113.00, with a high estimate of 133.00 and a coffee estimate of 87.00. The median estimate represents a +14.25% increase from the last price of 98.91.

Strengths

Strong Global Brand: Nike is that the most precious sports brand within the world. Its “Swoosh” logo is instantly recognizable round the globe. Its long partnership with legendary basketeer Michael Jordan has driven strong sales of the company’s basketball sneakers, including the retro business, which makes up about half the Jordan shoe business. In fact, one among every two basketball shoes within the U.S. last year carried that Jordan brand. Nike’s ability to take care of and enhance its iconic brands has allowed it to enjoy continued success for many years .

Low Cost Manufacturing: Virtually all of Nike’s footwear is manufactured outside of the us by independent contract manufacturers who operate multiple factories. In fiscal 2014, Vietnam, China, and Indonesia manufactured roughly 43%, 28%, and 25% of total Nike Branded footwear. It also has operations in Argentina, Brazil, India, and Mexico. The low cost of manufacturing products in these countries continues to spice up rock bottom line.

Strong Research and Development: Nike takes its research, design, and development efforts very seriously, and it believes this is often one among the key factors for its success. Technical innovation in both the planning and manufacturing process of its footwear, apparel, and athletic equipment has helped the corporate still produce better products, which have enhanced athletic performance and reduced injuries. the corporate has its own staff of specialists within the areas of biomechanics, chemistry, exercise physiology, and related fields, and also uses advisory boards made from athletes, coaches, trainers, orthopedists, and other experts who consult Nike about designs, materials, and ideas for products and enhancements .

Weaknesses

Ongoing Perception of Poor Labor Practices: It wasn’t way back that Nike was facing intense criticism of its labor practices and work conditions. However, over the past 20 years, it's undertaken efforts to enhance conditions for its roughly a million contract workers. While conditions have improved, many of its factories in developing countries still don't meet Nike’s own standards. the corporate itself has acknowledged that the low wages for a few of its workers remains a priority . questions of safety at certain locations also are a problem . If some sort of disaster were to occur at one among its facilities, this is able to little question hurt the company’s image.

High Prices: thanks to its strong brand, Nike can typically command a premium on the products it sells, which successively supports higher margins and profitability. However, the value of its footwear is above most of its competitors, which make its products out of reach for several customers round the globe, particularly in emerging markets. there's also the danger of declining demand when an economy falls into recession, as consumers have lower discretionary spending for non-essential items.

Opportunities

Emerging Markets: While Nike already features a presence in many emerging markets, we believe that there's still significant growth potential there. Rapidly growing economies like China, along side other emerging markets like India and Brazil, have the potential to drive future earnings growth. While China accounted for roughly 9% of 2014 revenues, the corporate believes this figure will rise because it continues to reinforce its brand image there. it's also realigning its product portfolio to raised appeal to Chinese customers’ tastes and preferences. All told, we expect Nike should be ready to increase its share of the worldwide footwear market by continuing to grow its base in these regions, which are reporting higher growth rates than developed markets for the past few years.

Innovative Products: Given Nike’s specialise in R&D, as mentioned within the strengths section of this analysis, the corporate is usually on the forefront on product innovation. While products like FuelBand, a wearable technology that monitors physical activity, might not are as successful as hoped, Nike still has its eye on subsequent “big thing”. The company’s brand strength, including its specialise in R&D, should allow it to stay at the forefront of latest technologies within the footwear and wearable technology space.

Threats

Competition: The athletic footwear, apparel, and equipment industry is very competitive, both within the us and round the globe. There are several significant athletic and leisure footwear companies and sporting goods firms that produce similar products. a number of the first ones are Puma and adidas. Other large companies have diversified their product lines to incorporate athletic and leisure footwear, sports and lifestyle apparel, and equipment, including Under Armour (UA) and lululemon (LULU). The rapid changes in technology and consumer preferences constitute significant risk factors for Nike. Too, demand for Nike’s products depends on the relative popularity of varied sports and fitness activities, also as changing design trends, so any major shifts in these trends could temper business results. If competitors have more success attracting customers with more appealing footwear or apparel, this is able to also hurt business prospects.

Currency Volatility: Since the bulk of Nike’s sales are generated outside of the us , the corporate is exposed to significant currency fluctuations. The recent strengthening of the U.S. dollar has hurt reported results, thanks to the foreign amounts being translated into U.S. dollars for reporting purposes. While the corporate does have certain hedges in situ , they're designed to reduce the impact of unfavorable exchange rates, not fully eliminate the danger . The dollar is predicted to still strengthen within the coming months, so this may remain a priority for the near term.

Conclusion

Nike remains the dominant force within the global footwear market. the corporate continues to report solid demand in both developed and developing markets. Further penetration of its products in emerging markets could lead on to strong growth for years to return . The company’s commitment to R&D and integration of emerging technologies into its products could also open up new opportunities for growth. All told, we expect Nike’s strengths and opportunities outweigh its weaknesses and threats.