I am neutral on Nike (NKE) as the company’s strong growth momentum and powerful global brand are offset by its high valuation levels.
Nike is a leading American multinational designer, manufacturer and distributor of athletic footwear, apparel and accessories for a wide range of athletic and outdoor activities. The company’s headquarters are based in Beaverton, Oregon. (See Top analyst actions on TipRanks)
Nike is the world’s largest supplier of athletic footwear and a leading sporting goods manufacturer with annual sales of $44.54 billion.
The company employs more than 76,700 people worldwide and is ranked 85th in the 2021 Fortune 500 list which highlights America’s largest companies by revenue.
The company markets its products under its own brands, as well as Nike+, Air Jordan, Nike Pro, Nike Golf, Nike Blazers, Nike Dunk, Air Max, Nike Skateboarding, Nike CR7, Foamposite and subsidiaries such as Converse and Jordan brands. . The company sponsors dozens of top athletes around the world.
Nike reported first-quarter fiscal 2022 revenue of $12.2 billion, a 16% year-over-year increase. Its net profit was $1.9 billion, an increase of 23%, as the company reported earnings of $1.16 per share, up 22%.
Revenue from the Nike branded segment was $11.6 billion, an increase of 12% year over year on a currency neutral basis. This was led by Nike Direct’s double-digit growth in North America, EMEA and APLA.
Converse revenue was $629 million, an increase of 7% on a currency-neutral basis. This was led by improved performance of Direct in North America and Europe.
Nike Direct sales improved 28% to $4.7 billion. The brand’s digital sales saw a 29% increase. The company’s gross margin also increased to 46.5%.
Nike said its cash, cash equivalents and short-term investments were $13.7 billion, an increase of about $4.2 billion from a year ago due to strong cash flow generation which was partially offset by share buybacks and dividends.
The company attributed its strong performance in the first quarter of fiscal 2022 to its excellent customer relationships, continuous improvement and adoption of digital technology.
Shares of Nike look highly appreciated at current levels. Its EV/EBITDA multiple is currently 33x, well above its five-year average of 22.9x.
Additionally, its P/E ratio is 45.2x, which is also well above its five-year average of 31.7x.
That said, growth is expected to be strong over the next few years, as revenue is expected to grow 5.8% in 2022 and 14.6% in 2023, and normalized EPS is expected to grow 34.2% in 2023.
The Taking of Wall Street
According to Wall Street analysts, Nike has a Strong Buy analyst consensus based on 17 buy ratings, three hold ratings and zero sell ratings over the past three months.
Additionally, Nike’s average price target of $181.53 puts the upside potential at 7.4%.
Summary and conclusions
Nike is a fantastic company with one of the biggest brands in the world. It’s seeing strong growth right now and Wall Street analysts are extremely bullish on the stock here.
That said, the stock price looks a bit pricey here, as the valuation multiple is trading at a significant premium to the company’s five-year averages on an EV/EBITDA and P/E basis.
Disclosure: At the time of publication, Samuel Smith had no position on any of the stocks mentioned in this article.
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