Why This Mature, Reliable Company Is Still a Favorite of Mine

Why This Mature, Reliable Company Is Still a Favorite of MineIn an environment that’s very difficult to generate real economic growth, this large corporation is predicting solid financial growth for the next several years.

NIKE, Inc. (NKE) continues to be an excellent wealth creator. It’s a mature, global, and very much ubiquitous brand; plus, the company keeps generating solid numbers to the delight of shareholders.

In a recent press release, NIKE announced that it expects to deliver $30.0 billion in revenues in fiscal 2015 and is targeting $36.0 billion in total sales by fiscal 2017.

The company’s long-term financial plan is intact. Management wants high single-digit annual revenue growth with earnings-per-share (EPS) growth in the mid-teens. That’s a solid expectation for any business, especially one worth over $65.0 billion.

NIKE’s most recent quarter was excellent with strong EPS growth, and the company boosted its cash position substantially. (See “Proven Wealth Creator Delivers Again; Earnings, Sales Growth Surge.”)

I continue to make the case that long-term investors can consider this company. Its current dividend yield is approximately 1.2%, but management should soon make an increase. The company can certainly afford it.

NIKE has been an exceptional performer on the stock market over the last few years. The position dropped to $20.00 a share during the March low of 2009. Now, it’s over $70.00 a share, which is an amazing performance for any mature company.

Like most brand-name corporations, the stock has experienced periods of nonperformance. This time last year, NIKE’s share took a prolonged break.

But with such a strong outlook from the company, investors are buying this stock at its high because there are very few businesses out there with these kinds of financial expectations.

Management expects the company’s growth to come from sales of apparel and women’s product lines. Sales in China are expected to return to previous levels, with North America and Western Europe providing high single-digit growth rates over the next several years.

NIKE owns the Converse brand, and this business should grow to approximately $3.0 billion in sales in fiscal 2017.

While Under Armour, Inc. (UA) has done extremely well on the stock market over the last couple of years as well, the company is much smaller than NIKE; I’d choose the maturity of NIKE’s brand over Under Armour.

In terms of direct competition for NIKE, there is adidas AG (ADDYY). This German company owns several brands, including Reebok, TaylorMade-adidas Golf, and Rockport. Adidas is not growing like NIKE, and I suspect that NIKE has been taking market share away from adidas, which is experiencing declining sales in its own market of Western Europe.

All in all, NIKE continues to be a great business, growing at a rate not typically associated with such large companies.

I think it’s fair to expect another dividend increase from NIKE in the near future. The position is fully priced on the stock market, but it always is.