The stock of Nike has declined in recent months, but the income report on Thursday offers the company a chance to persuade investors to rebound.
According to FactSet, Nike’s earnings estimates for the current quarter have dipped slightly in recent months and now stand at 51 cents per share. Estimates for future quarters have also decreased, so a beat on Thursday could lead to upward revisions from analysts.
Nike typically outperforms analysts’ expectations, and its stock price rises the following session. However, the fourth-quarter report has a history of being one of the weakest, with earnings misses in the previous two fiscal fourth-quarter reports.
According to Bespoke Investment Group data, the company has historically beaten earnings expectations 63 percent of the time and seen its stock rise after 58 percent of fourth-quarter reports. According to Bespoke, Nike has outperformed earnings expectations 90% of the time, resulting in a 63 percent increase in stock price after each report.
In recent years, shares have also been volatile following this earnings report. Last year, after reporting a surprise loss for this quarter, the stock dropped more than 7% the next day. In contrast, the stock increased by more than 11% following a fourth-quarter earnings beat in 2018.
Despite falling estimates and a shaky track record for the June report, Wall Street analysts are generally bullish on Nike. According to FactSet, 87 percent of analysts rate the stock as a buy.
Stifel analyst Jim Duffy, who has a buy rating on the stock and expects Nike to earn 61 cents per share, said in a note to clients on Monday that the company’s guidance will also exceed expectations.
“We see our above-consensus F4Q21 sales and earnings target as within reach, and expect FY22 guidance to call for [low double-digit] sales growth and gross margin expansion that exceeds the analyst day model of +50bps annually on average,” according to the note.
Duffy did lower his earnings forecast earlier in the quarter, citing supply chain issues and Chinese demand weakness.
Baird analyst Jonathan Komp, who has an outperform rating on the stock, has projected only 48 cents in earnings per share for the quarter but believes there is room for growth in the future.
“Despite near-term uncertainties within China (Pou Sheng monthly sales are still down >10% year on year), we believe the bar for NKE has been significantly lowered in recent months, as buyside expectations have come down faster and further than sell-side consensus,” Komp wrote in a note to clients on Monday.
Nike was trading at around $133.70 per share on Thursday, representing a 22 percent increase over FactSet’s average analyst price target of $163.34 per share.
What analysts expected
Investors should continue to purchase the Nike shares, Wall Street analysts said, ahead of Thursday after the bell’s fourth-quarter earnings report.
Here’s what Nike earnings analysts expect:
“The pullback in Chinese consumerism of Nike products was immediate and dramatic, but we believe there has been a slow recovery since then,” said Adrienne Yih, an analyst at Barclays.
Yih maintained her overweight rating, but said she needed more information from Nike’s earnings call before adjusting the firm’s estimates.
Meanwhile, UBS analyst Jay Sole believes investors are looking for a reason to buy the stock.
However, Sole cautioned that the China issue will not be resolved as quickly as investors believe.
“This, along with the lower-than-expected guidance, will likely deter investors from buying shares after the news is released because it is unclear when the China issue will be resolved,” Sole said.
Nonetheless, the firm praised the company’s “robust long-term outlook.”
While the China news is still concerning, according to investment firm Baird, it is still a “multiyear” buying opportunity.
“Despite near-term uncertainties within China, we believe the bar for NKE has been significantly lowered in recent months, as buyside expectations have fallen faster and further than sell-side consensus,” wrote analyst Jonathan Komp.
Jim Duffy, a Stifel analyst, felt the same way.
Nike’s “global category positioning” and “improved margins” were cited by the firm as reasons to own the “core large-cap growth holding,” he said.
However, according to Bank of America’s preview note, the real test will be whether Nike provides guidance.
According to analyst Lorraine Hutchinson, this should give investors an idea of how long the athletic retailer believes the China situation will last.
“F4Q results could be a positive catalyst if guidance is strong, but they could be disappointing if China clarity remains elusive,” she said.