Upside for Nike Stock?
A $100-billion company making sports apparel and footwear might not look that exciting, but don’t be fooled by first impressions. Going forward, there could be some serious action in Nike Inc (NYSE:NKE) stock.
Here are three reasons why Nike stock should be at the top of your watch list…
The company’s dominance in the sports apparel and footwear industry needs no introduction. What is less known is Nike’s continued success in its financial metrics.
You see, Nike has a solid track record when it comes to earnings beats. In the past calendar year, the company beat Wall Street’s earnings estimates in all four quarters. (Source: “Analyst Estimates,” Yahoo! Finance; https://ca.finance.yahoo.com/q/ae?s=NKE, last accessed March 15, 2016.)
The series of earnings beats led to an impressive bull run in Nike stock. In 2015, Nike’s stock price surged 31.2%, from $45.75 to $62.34.
There are many companies that make great products, but at the end of the day, they need to make money. Luckily, Nike has that covered.
In the most recent fiscal quarter, the company expanded its gross margin by 50 basis points to 45.6%. The higher average selling prices of Nike’s products helped to boost margins despite the negative impact from exchange rate fluctuations. (Source: “Nike Inc Reports Fiscal 2016 Second Quarter Results,” Nike Inc, December 22, 2015.)
At the same time, the company’s tax rate has declined. In the quarter, Nike decreased its effective tax rate to 19.4%, significantly lower than the 25.4% tax rate in the year-ago period.
Improved margins and a lower tax rate allowed Nike to grow its earnings faster than revenue. In the quarter, the company’s revenue grew 12% year-over-year on a constant currency basis. Earnings per share surged a more impressive 22% year-over-year to $0.90.
Returning Value to Shareholders
Compared to other companies in the sports apparel business, Nike has done a great job in terms of returning value to shareholders. In the past 14 years, Nike has returned more than $23.0 billion to shareholders thorough stock buybacks and dividends.
The company is currently pursuing an $8.0-billion share repurchase program, which is expected to be completed by the end of fiscal 2016. But that’s not all. Nike’s board has approved a new four-year, $12.0-billion stock buyback program. It will start upon completion of the current program. (Source: “Nike Inc Announces New $12 Billion Share Repurchase Program, 14% Increase in Quarterly Dividend, and Two-For-One Stock Split,” Nike Inc, November 19, 2015.)
Nike has also raised its quarterly cash dividend to $0.16 per share (after the split). On an annualized basis, that’s a dividend yield of 1.04%. Note that the company has been growing its annual dividend rate since 2004. (Source: “Dividends,” Nike Inc; http://investors.nike.com/investors/stock-information/?toggle=dividends, last accessed March 15, 2016.)
Bottom Line on Nike Stock
Now, the company is scheduled to report its third quarter fiscal 2016 results after the closing bell on Tuesday March 22. If it manages to maintain its track record and deliver another earnings beat, there could be another surge in Nike stock.