The World Cup 2018 (football) is now very much underway and the market is already pushing up footwear stocks such as NIKE, Inc. (NYSE: NKE) and Adidas. In particular, the stock of Nike is making new highs recently. It hit a 12-month high of $75.91 last week and hovers near that level. With just a week remaining for Nike to publish its 4Q 2018 results, we are expecting the stock to reach a level of $80+ based on the reasons given below. The stock ended Wednesday’s trading session at $74.72.
The Beaverton, Oregon-based company plays an important role at the 2018 FIFA World Cup in Russia. By partnering with popular athletes in the US and the rest of the world, the company continues to build its brand. The world’s largest sports apparel company sponsors 10 football teams in the World Cup 2018, compared with 12 teams by its German competitor Adidas.
Under Armour (UAA), which is a budding competitor to Nike is not involved in the sporting event in any manner. Nike, which is the official jersey sponsor of NFL and NBA, the most popular sports of America, is reportedly in talks to acquire MLB as well.
Nike also holds the credit of sponsoring the top seven of the world’s eight most famous athletes, including Ronaldo, Neymar, LeBron James, and Kevin Durant. The World Fame 100 list was published by ESPN’S DIS. Nike reported a 24% increase in Greater China revenues to $1.34 billion in the recent quarterly results. Likewise, sales in Europe, Africa, and the Middle East grew 19% to reach $2.29 billion. This reflects the global reach of the company.
The stock of Nike trades at 28.5x forward 12-month EPS estimates. This looks a bit stretched, but it has been so in the past as investors have been willing to pay premium for the value it offers.
Nike commands a 50% market share in the US and nearly 20% in China. Eric Pomerantz, who works as a financial advisor at Moody Investment, believes that the stock will remain bullish as long this trend continues. He also expects the changes in foreign currency rates to have a favorable impact on Nike.
Christopher Svezia, an analyst at Wedbush, expects Nike, which is the third best performing Dow Jones stock in 2018, to exceed estimates of analysts in the second half of 2018 as well. Svezia believes the growth will be driven by an increase in demand in North America. Furthermore, the gross margin is expected to increase during fiscal 2019. He also pointed out that Nike is increasing its market share in Europe while growing at a double-digit rate in China.
Based on the social media follower counts, Svezia is optimistic about an improvement in production speed and quality of products. Based on these facts, the analyst has issued an ‘outperform’ rating for the stock. Svezia also revised the target price to $82, from $75 issued earlier. Wedbush anticipates Nike to report earnings of $0.68 per share on revenues of $9.40 billion. In 4Q17, the company had reported earnings of $0.60 on revenues of $8.68 billion. We expect the analysts’ upbeat view to keep the stock bullish in the short term.
The stock is moving along an ascending channel as shown in the image below. Furthermore, the vortex indicator confirms the underlying bullishness in the stock. Therefore, we are expecting the stock of Nike to move up in the short term.
A call option is one of the ideal investment vehicles to trade short-term trends. So, we may obtain a call option from a binary broker when the stock trades near $75 in the NYSE. Additionally, we require the option contract should be active until June 29th.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.
