NIKE, Inc. - Growth & Income

NIKE, Inc (NKE) has come a long way from its humble beginnings in Oregon. Although best known for its high-priced sneakers, Nike has grown into a successful apparel and equipment business too, which now account for 37% of the company's total revenue.

Nike has also grown into a globally recognized brand with over 63% of revenue coming from outside of North America, compared to 45% in 2000.

The company recently delivered a solid quarter marked by strong revenue growth in both North America and the emerging markets. Nike has also been rewarding its shareholders through stock buy backs and generous dividend hikes. It is a Zacks #2 Rank (Buy) stock.

Strong Emerging Market Growth

Nike reported its results for the first quarter 2011 on September 23. Earnings per share was $1.14, up 10% over the same quarter in 2009. This beat the Zacks Consensus Estimate by 13 cents.

Revenues were up 10% year-over-year excluding currency changes. Revenues in North America were up 8%, driven by strong apparel sales. Greater China saw its revenues grow 10% over the same period. Revenues in Japan fell 18%, however. Emerging markets (excluding China) grew by an impressive 24% - including a remarkable 70% increase in Brazil alone.

Meanwhile, the overall gross margin expanded from 46.2% of sales to 47.0%. This helped drive net income 9% higher.

Outlook

At the end of the first quarter, worldwide future orders scheduled for delivery from September 2010 and January 2011 totaled $7.1 billion. This is 13% higher than orders reported for the same period last year. This includes a 23% jump in Greater China and a 14% increase in North America.

Several analysts revised their estimates higher following the solid quarter. The Zacks Consensus Estimate for 2011 is $4.38, a 14% increase over 2010 EPS. The 2012 estimate is also calling for double-digit EPS growth. The Zacks Consensus Estimate is $4.93, equating to 12% growth.

Returning Value to Shareholders

On November 19, Nike announced a 15% dividend hike. It marks the company's 9th consecutive year of an increase. Since 2002, Nike has raised its dividend at a compound annual rate of 21%.

The stock has a dividend yield of 1.4%.

Nike also spent approximately $517 million repurchasing 7.3 million shares in the quarter.

Valuation

Shares are up almost 25% since late August. Valuations have risen along with the stock, but it does not appear to be grossly overvalued.

Shares are trading at 19.5x forward earnings, a premium to the industry average of 14.4x. Its PEG ratio is a respectable 1.6 however.

NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon. It has a market cap of $41.4 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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