Zacks_Analysts' Blog : Earnings Scorecard: Nike - Analyst Blog

Nike Inc. (NKE">NKE) recently posted its second-quarter 2012 results.  Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

On December 20, 2011, Nike posted earnings of $1.00 per share for second-quarter 2012, beating the Zacks Consensus Estimate of 97 cents and rose 6.4% from the year-ago earnings of 94 cents. Management hinted that strong top-line performance coupled with selling and administrative expense leverage and lower average share count boosted its bottom line.

Nike's total revenue grew 18% to $5,731 million from $4,842 million in the prior-year quarter, primarily driven by growth in all key categories of NIKE Brand, except Action Sports, and in geographic regions excluding Japan. The company continued to benefit from its strategy of consistently focusing on innovative products that provide a competitive edge over its rivals. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,627 million.

Agreement of Analysts

Estimate revision trend for the upcoming third-quarter 2012 portrayed negative sentiments among most of the analysts covering the stock. Over the last 7 days, 9 out of 16 analysts revisited and downgraded their estimates for third-quarter 2012.

However, for the fourth quarter of fiscal 2012, analysts have mixed sentiments over the stock. Over the last 7 days, 8 analysts revisited their estimates for fourth-quarter 2012, of which 4 have upgraded while remaining has downgraded their estimates.

Moreover, for fiscal 2012, estimate revision trend represents a negative sentiment among most of the analysts. Over the last 7 days, 9 analysts revisited their estimates, of which 8 downgraded while 1 analyst has upgraded its estimate for fiscal 2012. While for fiscal 2013, estimate revision trend depicts a mixed sentiment, as 4 out of 7 analysts revisiting their estimates have downgraded while 3 analysts have upgraded their estimates, over the last 7 days.

Magnitude of Estimate Revisions

As a result of the bearish sentiment seen among most of the analysts over the past one week, the Zacks Consensus Estimate for fiscal 2012 has moved down by 4 cents to $4.94. While for fiscal 2013, Zacks Consensus Estimate has been increased by a penny to $5.75.

Meanwhile, for the third and fourth quarter of 2012, the Zacks Consensus Estimate has decreased by 6 cents and 1 cent to $1.16 and $1.41, respectively in the last 7 days.

Our Recommendation

Nike is the industry leader by a stretch in the U.S. footwear and athletic apparel industry. Furthermore, a strong portfolio of globally recognized brands, Cole Haan, Converse, Chuck Taylor, Hurley and Umbro provide a competitive advantage to the company and bolsters its dominant position in the market.

Further, Nike is aggressively expanding its operations in the emerging markets while focusing on direct-to-consumer business and other brands, which augur well for future operating performance. Moreover, the company’s near-to-debt free balance sheet offers financial flexibility to drive future growth.

However, sluggish discretionary spending and intense competition amid rapidly changing customer preferences will continue to weigh upon the company’s future operating performance.

Nike, which faces intense competition from PVH Corporation (PVH">PVH) and Brown Shoe Company Inc. (BWS">BWS), currently, maintains a Zacks # 3 Rank, which translates into a short-term 'Hold' rating. Moreover, we are maintaining a long-term 'Neutral' recommendation on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/