The last time we talked about Nike (NYSE:NKE), we were looking at its third-quarter earnings, and this was almost two months ago. Back then, we were pointing out how its results had managed to destroy estimates, and deliver an impressive new package in e-commerce operations. With its next quarterly earnings about a month or so out, give or take—concluding just ahead of Christmas—Nike is in an excellent position to make another major hit on earnings, and new analyst perspective backs that point up nicely.
There's A Reason It's a Most-Upgraded Stock
Our latest research covering Nike points out that the company represents one of the “most-upgraded stocks” around, and the latest news underscores that point well. Just yesterday, Royal Bank of Canada kicked off coverage of Nike, calling it an “outperform” and giving it a price target of $145 per share. Current analysis from RBC considers the stock an “offensive growth play”, reports note, and features a balance sheet with some excellent numbers to its credit.
Of particular note in RBC's assessment is Nike's increased focus on direct-to-consumer sales. Its move to bypass the brick-and-mortar market, which has been increasingly seen as weak in the face of pandemic-related restrictions that are, in some places, still ongoing has proven quite effective. This has been a familiar trend of late, with companies from Target (NYSE:TGT) to Tapestry (NYSE:TPR) being called out for improvements in their e-commerce operations.
RBC, via analyst Kate Fitzsimmons, notes that there are actually several paths to victory for Nike going forward, including gains in efficiency at the operational level, improvements to the wholesale distribution model, and an overall shift in the company's marketing mix. Here, “success” means “mid-high teens” level compound annual growth rate (CAGR) in its earnings per-share (EPS) figure, and Fitzsimmons looks for that trend to continue for the next five years.
Part of a Growing Consensus
Fitzsimmons' remarks are certainly eye-catching, but there's just as much substance underneath. All one need do to prove that much out is look at September 23, when an avalanche of positive ratings came in for Nike. That day, around 15 price target hikes landed for the company, as analysts from Credit Suisse to Citigroup to Wedbush boosted price targets.
Moreover, the company's status as a buy has only increased over the last six months. Six months ago, the company had three “sell” ratings, five “hold” ratings, and 28 “buy” ratings. Today, there's only one “sell”, just three “hold”, and 30 buy ratings. The price target has also steadily climbed, going from $98.33 six months ago to $137.09 today. With Nike trading at $127.66 as of this writing, it's clear there's still upside potential left to go here, and that's assuming the consensus proves accurate.
A Complete Retooling on the Marketing Mix
Those with a marketing background will likely remember the term “marketing mix,” especially the four “P”s, which some amplify to seven: Product, Price, Place and Promotion. Nike has been working virtually every side of this equation, bringing out new places to sell with its e-commerce shift and new promotional measures accordingly.
Several new product measures have also stepped in; the company is set to bring its Adapt auto-lacing technology to the Air Jordan 11 line, and will be premiering its “Fearless Together” line of golf shoes at the upcoming Masters tournament. Throw in the Air Max 1 N7, with designs to commemorate the Standing Rock Sioux tribe and the Cactus Plant Flea Market Dunk Low—described by some as a “walking disco ball”—and you can see that Nike's eagerly working just about every angle of style it can find to augment its price and product lines.
A company that so thoroughly exemplifies a commitment to good marketing really should be doing well. About the only thing that can slow Nike now is a generalized economic malaise in which no one's buying shoes or activewear in general, and such conditions don't look immediately on the horizon. Throw in the appraisals of the analyst community—especially Kate Fitzsimmons, as we noted previously—and the picture only improves.
Take all of these points together, and the odds of Nike's next earnings report looking similar to the last earnings report—which was a knockout by most measures—look fantastic. Going into holiday shopping season certainly doesn't hurt matters any, and it's a safe bet Nikes will be found under plenty of trees this year, giving Nike another headwind, and another reason to buy in.
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