Wedbush: Nike Has Upside Potential Heading Into 2019

Nike Inc NKE looks promising ahead of its earnings report next week, according to Wedbush.

The Analyst

Analyst Christopher Svezia maintains an Outperform rating on Nike with a $90 price target.

The Thesis

Ahead of the Nike second-quarter report scheduled for Dec. 20, Svezia said underlying revenue growth and continued improvement in gross margin should yield EPS upside. (See the analyst's track record here.)

Wedbush expects 7-percent revenue growth and EPS of 47 cents per share, a penny above consensus, in the print. 

Nike should reiterate its outlook for high single-digit revenue growth fueled growth in North America; sustained gains in EMEA and China driven by key product franchises; channel mix; higher average selling price; and digital momentum, the analyst said.

Nike is seeing record engagement on social media, he said. 

From a valuation perspective, FX headwinds and China trade war fears remain a key concern but have been priced in at current levels, Svezia said. 

“Overall, there are several underlying positives for investors to focus on that illustrate the true momentum of the business."

Nike's diversified manufacturing capabilities make it one of the least affected footwear companies when it comes to its dependence on Chinese manufacturing, NPD group analyst Matt Powell recently told Benzinga. 

“Nike is one of the most diversified sneaker companies in terms of their manufacturing and where they manufacture products," Powell said.

Wedbush's Svezia said Nike sources roughly 25 percent of its goods from China, a figure that likely continues to fall. 

Incremental 25-percent tariffs could create anywhere from an immaterial impact to up to 16 cents in annual EPS, the analyst said — but he's largely bullish on the company heading into the new year. 

“The underlying outlook for the company has again improved and there continues to be upside opportunity in FY19 on both sales and gross margin, key ingredients to generate multiple and share price expansion."

Price Action

Nike shares were down 0.56 percent at $72.53 at the close Friday. 

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