Daily Stock Pick: September 8th, 2021

Investors were cautious this morning after yesterday’s losses.  The major benchmarks started today’s session red.  Fear of rising infection rates and policy debates in Washington continue to weigh heavily on equities.  Several firms, including Morgan Stanley, Credit Suisse, and Citigroup, have cautioned investors that the bull case is losing steam for the rest of the year.  

Morgan Stanley chief cross-asset strategist Andrew Sheets said in a note yesterday, “We see a bumpy September-October as the final stages of a mid-cycle transition play out.  The next two months carry an outsized risk to growth, policy, and the legislative agenda.”

In today’s stock pick, we’ll discuss a historically dependable company whose share price has held up well against the most strenuous of conditions.   

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Nike (NKE) stock has held strong through the toughest twists and turns, partly due to the company’s exposure to high-growth international markets.  Nike shares have been up 38.4% in the past three years, while peer Under Armour (UA) stock is down 58.1%.

In July, the company reported stellar fourth quarter and fiscal 2021 numbers that far surpassed analyst expectations, proving once again that demand for their products remains strong, even in the face of uncertainty. 

Fourth-quarter reported revenues were $12.34 billion, up 96% from the prior year and 21% from Q4 of 2019, topping estimates of $11.01 billion.  Earnings per share were $0.91, a great deal higher than the $0.51 expected.   

In North America, Nike’s biggest market, sales more than doubled to a record $5.38 billion as the company surged from a year earlier when the Covid pandemic was hitting the retail industry the hardest.  The region’s sales were up 29% on a two-year basis.

Full-year reported revenues increased 19% to $44.5 billion.  “Nike’s strong results this quarter and full fiscal year demonstrate Nike’s unique competitive advantage and deep connection with consumers all over the world,” said John Donahoe, President & CEO.  “FY21 was a pivotal year for Nike as we brought our Consumer Direct Acceleration strategy to life across the marketplace. Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike’s long-term growth.”

 Looking ahead, the global sporting goods company offered a better-than-expected sales outlook for the upcoming year, driven by the enthusiasm surrounding its women’s category, apparel business, and Jordan brand.  In fiscal 2022, Nike is expecting revenue to grow a low double-digit percentage, surpassing $50 billion.  Analysts were looking for annual revenue of $48.5 billion.  The company anticipates the first half of the year to grow faster than the second half.

The athletic apparel and footwear company’s long-term growth narrative remains strong.  To this end, Oppenheimer analyst Brian Nagel left his Buy rating as is.  Further demonstrating his optimism, Nagel bumped up the price target from $150 to $195, bringing the upside potential to 18%.  

“We believe Nike enjoys further room to run.  In our view, recent investments are only beginning to pay off, and the market is underappreciating meaningfully enhanced intermediate- to longer-term EPS power of a digitally-driven NKE model,” Nagel cheered.  

Of 29 analysts polled, 25 rate the stock a Buy, and 3 rate it a Hold.  There is only 1 Sell rating for NKE stock.  A median consensus 12-month price target of $185 represents a 13.75% increase.    

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