Nike, Inc. - Ordinary Shares - Class B

+4.32 (+3.24%)
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Nike Is Absolutely Crushing It and the Stock Could Rise Further


##Symbol## NKE

There are only seven mega companies in all of North America with market caps above $50 billion that have a five star fundmental rating and have bullish momentum. Nike is one of them, coming in at number four. Here's the star scan image.

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Nike (NKE) crushed earnings back on June 25th and the stock market loved it, pushing the price to all-time highs. The company reported $7.78 billion in revenue beating estimates of $7.69 billion. It beat EPS estimates with $0.98 versus an expected $0.83. Even further, gross margin % increased over half a percent due to higher average selling prices.

The end of quarter worldwide future orders for Nike brand products (backlog) scheduled for delivery through November 2015 were 2% higher than in the year-earlier period, but when currency fluctuations were accounted for, it was actually 13% higher. These are ridiculous numbers for company of this size. How is this happening?

Outside of technology, Nike is perhaps the single greatest marketing company in the world. Its market cap, revenue and earnings are massively larger than any competitor in its industry and yet somehow the firm maintains stellar revenue per employee results (even with more than 50,000 employees). It has found a strong new comer into the field in Under Armour which has added some competition in the sports apparel and sports celebrity endorsement segment. NKE has also found some competition from Lululemon Athletica in the active wear segment. All told, though, NKE revenue is an order of magnitude larger than both UA and LULU.

NKE's revenue (TTM) has risen for twenty consecutive quarters.

The average estimate for next quarter's revenue of $8.2 billion is above last quarter's $7.8 billion.

Technicals   |   Support: 109.27   |   Resistance: 112.41   

Golden Cross Alert:
The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

NKE has a five bull (top rated) technical rating because it's trading above its 10-, 50-and 200- day moving averages and the stock is up on the day.

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-09-24 $1.18 $8.2 billion M $8.2 billion M $7.8 billion M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 30,601 27,799 25,313

Operating Margin (QTR) 1.147 1.14 1.16 RISING

Net Income (TTM US$ Millions) 3,273 2,693 2,472

Levered Free Cash Flow (TTM US$ Millions) 2,654 2,049 1,944 RISING

Stock Returns and Chart

NKE is up +12.2% over the last three months and up +20.6% over the last six months. The stock price is up +45.7% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 30,60127,79925,313

Revenue (TTM) has increased for 20 consecutive quarters (five in a row triggers a "trend"). In the time series chart below, we can see the consecutive quarter growth. Revenue is up 10% year-over-year and 21% over the last two-years. As of the most recent twelve-months, NKE revenue is $30.6 billion which is an all-time high as margins are rising. More fodder for the fire, in early June, Nike signed a new deal with the NBAto become the official apparel provider on court for the league starting with the 2017-18 season. While UnderArmour (UA) is doing a wonderful job of making inroads in to the NBA, they're still just inroads. Nike is the giant, and Nike is growing.

What do all these numbers mean?
NKE's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the five+ consecutive quarters of an upward trend in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Gross Magin % 46%44.8%43.6%RISING

Normally I look at operating margins, for NKE the compelling story is gross margin %. We can see in the chart below that gross margin % is steadily increasing. This proves the company's brand power as it raises prices yet sales growth continues. It also points to the entrance of other players, like Lululemon (LULU) , which have entered apparel in general with premium priced goods. Nike simply stepped in and did the same thing and what do you know, its brand carries across segments of the apparel world. We can see NKE's remarkable increase in gross margin % from 43.6% two-years ago to now 46%. Friends, this is what a powerhouse looks like. Let's look at Gross margin % in the blue bars in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) 3,2732,6932,472

With revenue breaking all-time highs and gross margin % increasing, earnings must follow. Net Income (after tax profit) over the trailing twelve months (TTM) for NKE is rising with an incredible 21.5% year-over-year change. Net Income (TTM) (aka annual earnings) is trending higher meaning that annual earnings have increased for at least five consecutive quarters. NKE is growing earnings like a growth company, and there is every reason to believe that this strength will continue.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars.

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Levered Free Cash Flow (TTM US$ Millions) 2,6542,0491,944RISING

Levered Free Cash Flow (FCF) (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. Add FCF to the list of core fundamental metrics hitting all-time highs. FCF now stands at $2.7 billion in the trailing-twelve-months, up 29.5% year-over-year.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the rising bars from a year ago (four quarters ago).

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NKE revenue (TTM), net income (TTM) and free cash flow (TTM) each stand at all-time highs. Revenue growth has maintained double digits over the last two years, even when accounting for a dramatic impact on currency fluctuations. The company has faced competition on multiple fronts from UnderArmour (UA) in the sports endorsement and celebrity realm and from Lululemon (LULU) in the premium "Wunder Unders" realm yet it continues to grow both sales and margins in the face of competition. The company generates superior revenue per employee than most peers even though it has a massively larger work force. The company has been and will be plagued by accusations of unfair (or illegal) work environments overseas, and we all hope those conditions change. For now, the bullish thesis for NKE is possibly the clearer than that for any other company in North America:

The best brand means growing sales, earnings and free cash flow as prices rise with that brand recognition and competition isn't even scratching at the door.