Citi’s Kate McShane banging drum on Nike (NKE), saying buy ahead of June 24 earnings. Two reasons: FQ4 upside ($1.01 vs. $0.95 consensus) and valuation:
We forecast Q4 EPS of $1.01 on 12% top-line growth, vs. consensus of $0.95. We expect continued double-digit growth in all non-US segments, driven by momentum in China, easy y/y comps in the Americas, and mid-single digit growth in the US. Recent results from Puma and Adidas suggest stronger int’l results for NKE, while NPD data indicates NKE continues to outperform the broader US mkt and benefit from significant mkt share gains.
EPS & Valuation Sensitivities Suggest Limited Downside — We analysed Q4 EPS
sensitivity to changes in gross margin and US footwear sales. If Nike posts flat GM y/y or flat to -5% US footwear sales, we see only 1% – 3% downside to our estimate. In addition, applying the group avge P/E of 14.5x to our FY09 est. drives a target of $65, or ~4% downside from current levels.
China Trip Takeaways and Olympics Analysis — Nike remains the leading sports brand in China, w/ $1B in trailing annual sales, nearly a year ahead of mgmt plan. Significant LT growth opptys remain, as the country remains underpenetrated and China per capita spending is only $7-$8 on athletic goods, vs. $160 in US and $140 in Japan. While our sporting events analysis implies NKE’s stock typically doesn’t peak until 92 days after the Olympics, we view ’08 differently since it is taking place in an emerging mkt and will be a catalyst for further growth in China, rather than a peak in the growth rate.