Nike's hot run may be ready to cool

It's time for investors to stay on the sidelines.

By MSN Money Partner Sep 30, 2013 11:35AM

By Jonathan Berr

 

Nike (NKE), which fell out of favor earlier this year when it slashed its earnings outlook because of weakness in China, is back in Wall Street’s good graces after reporting better-than-expected​ quarterly results on Friday.

 

Net income at the world’s largest sporting-goods company -- and recent addition to the Dow Jones Industrials -- climbed 38% to $780 million, or 86 cents per share, compared with $567 million, or 63 cents per share, a year earlier. Revenue surged 8% to $6.97 billion. Excluding one-time items, the Beaverton, Ore., company earned 86 cent per share, well above the 78-cent average estimate of Wall Street analysts. And the revenue figure beat the $6.96 billion analysts expected.

 

Investors found find plenty to like in Nike’s report and bid the shares higher in Friday trading. Apparently, the earnings and upgrade to "buy" from Sterne Agee trumped the downgrade to "hold" from Stifel.

 

Revenue for the Nike brand rose 7% on a currency-neutral basis to $6.5 billion, fueled by gains in every product type and in every region except greater China. Sales rose for running, basketball and soccer products, offsetting a decline in sportswear. Converse, which Nike owns, reported sales of $494 million, a 16% gain excluding the impact of currencies.

 

Nike running shoes are displayed for sale at a store in Encinitas, California © Mike Blake/ReutersThe earnings performance showed that the new products CEO Mark Parker has introduced, such as the Flynet shoe line, were selling well. Gross margins rose to 44.9% from 43.7%, indicating that Nike is maintaining its pricing power as raw material costs fell. As Bloomberg News noted, this was the third consecutive increase in that key metric after nine straight declines.

However, business in China continued to struggle, though it appears things are stabilizing. Sales plunged for the fourth straight quarter, dropping 3% to $574 million. But orders on a constant-currency basis gained 2%, which is better than analysts had expected.

Shares of Nike have already run far this year, gaining more than 40%. However, Stifel's "hold" recommendation may be the better one here, after all. There doesn’t appear to be any near-term catalysts that could push the stock much higher. Nike trades at price-to-earnings ratio of 24.15, its highest in five years. And the average 52-week price target is $70.70, above where it recently traded.

Nike's stock isn't headed for a fall, but it could start running out of gas. Investors can find better places to put their money.

And that’s Killer Companies.

More from Top Stocks

Tags: NKE
2Comments
Sep 30, 2013 2:13PM
avatar
Perhaps it is because their shoes cause at least 3 blisters per wearing, they wear out in record time, and they do not wash.  Just some suggestions,   Wear Keds!
Sep 30, 2013 2:47PM
avatar

I for one have stop buying any thing that has to do with Nike because of there backing of people like Tiger Woods and so many of the other as they call them bad Boy of sports. I do not want to reward people or a company like tis and I don't want my kids looking up to these people or a company like this.

It also help my bottom line not buy Nike for 3 kids> I can get shoes now for less and the last longer 

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
268
268 rated 2
439
439 rated 3
709
709 rated 4
641
641 rated 5
609
609 rated 6
640
640 rated 7
516
516 rated 8
272
272 rated 9
152
152 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION10
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.