Here's Why Nike (NKE) Stock Looks like a Buy Heading into Q3 Earnings

Benjamin Rains

Nike NKE shares dipped over 1% during regular trading hours Wednesday in a sign that some investors might have a few jitters about the sportswear powerhouse that has been flying high as of late. Heading into its Q3 fiscal 2019 earnings report, which is due out after the closing bell Thursday, Nike is a Zacks Rank #2 (Buy). So, let’s see what to expect from the company’s third quarter financial results, including North American and Chinese sales.

Quick Overview

Nike returned to growth in the vital North American market on the back its direct-to-consumer push, highlighted by its impressive digital expansion. Nike’s digital revenues surged 41% last quarter, with mobile accounting for over 50% of its digital commerce sales. Looking ahead, Nike CFO Andy Campion expects that its digital division will make up 30% of Nike’s total business by 2023, compared to roughly 15% in Q2.

The Oregon-headquartered firm has rolled out multiple shopping-focused apps and its reach across quickly expanding Instagram FB—where people now shop directly—crushes rivals Adidas ADDYY and Under Armour UAA. The company has also remained a mainstay in professional sports throughout the world. Plus, Nike has built up its non-performance fashion business as the athleisure market continues to boom, highlighted by Lululemon LULU and others.

At the same time, its sneakers remain a growth driver. And NKE is committed to a more strategic wholesale business, which includes working with Foot Locker FL, Nordstrom JWN, and Dick’s Sporting Goods DKS.



Q3 Outlook

Moving on, our current Zacks Consensus Estimate calls for Nike’s Q3 fiscal 2019 revenue to pop 6.2% to reach $9.54 billion, which would mark a slowdown from its 10% top-line expansion during the holiday shopping quarter. More specifically, Nike’s footwear sales, which often account for over 60% of total revenue, are projected to jump 6.6% to reach $5.97 billion, based on our NFM estimates.

Wall Street will also pay close attention to Nike’s North American sales because NKE returned to growth in the key region over the last few quarters after a stretch of declines. NKE’s revenue in the region that represents around 40% of total company sales is expected to climb 8% to $3.87 billion. This would nearly match Q2’s growth, but we should note that North American sales fell 6% in Q3 2018.

Investors should also pay close attention to Greater China as the downturn in the world’s second-largest economy has hurt the likes of Apple AAPL, Alibaba BABA, and others. With that said, the sportswear firm’s sales in Greater China are still expected to surge 15% to reach $1.54 billion. This would fall short of Q2’s 26% expansion in the region, but mark the 19th consecutive quarter of double-digit revenue growth.

Earnings Trends

Nike’s adjusted fiscal Q3 earnings are projected to slip 7.4% to hit $0.63 per share. Despite this excepted bottom line decline, the company boasts a strong history of quarterly earnings beats. This includes some huge beats over the last four quarters.

For instance, Nike crushed our earnings estimate by over 15% last quarter. And we can see that the company has seen positive earnings estimate revision activity over the last seven days for Q3, which means at least some analysts are higher on Nike’s EPS figure heading into its release.



Bottom Line

Nike is a Zacks Rank #2 (Buy) at the moment based largely on its earnings estimate revision activity. Plus, Nike is a dividend payer that has seen its stock price jump 17% this year to outpace the S&P 500’s 13.5% jump.

Nike is scheduled to report its Q3 fiscal 2019 financial results after the closing bell on Thursday, March 21. So, make sure to head back to Zacks for a full breakdown of Nike’s actual quarterly metrics.

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