Nike Stock Analysis: New Deal Makes Nike’s Future Even Brighter

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Gabriel Segall is a Intern Financial Analyst at I Know First

Nike Stock Analysis

Summary

  • nike logoNike Inc. Signs LeBron James for a lifetime deal
  • Shares Set to Split on Thursday, December 24th
  • Nike vs. Under Armour in 3 Key Statistics
  • I Know First is Bullish on Nike Inc.

NIKE, Inc. (NYSE:NKE) focuses in the design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. The Company sells its products through retailer stores owned by them, there main website and through a mix of independent distributors and licensees throughout the world.

 Nike Inc. Signs LeBron James for a lifetime deal

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The shares of Nike Inc. rose about 1 percent in Mondays after-hours after the company announced that they signed NBA player LeBron James for a lifetime contract. In a statement the company said, “We have agreed to a lifetime relationship with LeBron that provides significant value to our business, brand and shareholders. We have already built a strong LeBron business over the past 12 years, and we see the potential for this to continue to grow throughout his playing career and beyond.”

In 2003 James signed a contract with Nike for a record $90 million after graduating high school, this was before he even played a game in the NBA. Since that moment he has won 2 NBA titles but in a disappointing 6 appearances.

He signed a two-year, $42 million contract with the Cleveland Cavaliers in the summer of 2014.

ESPN’s Darren Rovell reported that, “A source close to the deal it easily surpasses the 10-year, $300 million deal Oklahoma City Thunder forward Kevin Durant signed with the world’s largest shoe and apparel brand last summer.”

Shares of Nike closed Monday at $131.63. The stock is up 37 percent year-to-date.

(Source: Google Images)

“It meant a lot to me even when I signed my first deal… and it means even more that they’ve given me this,” James told ESPN’s Dave McMenamin. “I don’t want to be nowhere else. I’m Nike and swoosh for the rest of my life.”

We are expecting that the largest contract they have ever made with a player will increase sales in the basketball section and at the same time help to boost the share price.

 

The split on December 24th

The giant retailer has arranged to split on Thursday the 24th of December. The company is planning on doing a 2-1 split.

Nike started at 131.60 on Tuesday. The company has a market cap of $112.15 billion and a P/E ratio of 33.34. Nike has a 1-year low of $90.69 and a 1-year high of $135.30. They last posted its earnings results on September 24thwhere they reported $1.34 EPS for the quarter, exceeding the expectations of $1.19 by $0.15. The business had revenue of $8.40 billion for the quarter.

Nike announced recently a quarterly dividend that will be paid to the shareholders on January 4th. Shareholders of record on Wednesday, December 9th will be given a $0.32 dividend. This is an increase from Nike’s previous quarterly dividend of $0.28.

nike graphSource: Google Finance

Equities research analysts have reported on the stock. BB&T Corp. changed the rating from hold to buy and sat a target price of $148. DA Davidson upped their price target on shares of Nike from $140.00 to $145.00. Telsey Advisory Group increased their target price on shares of Nike from $128.00 to $136.00. Citigroup Inc. raised their price objective on shares of Nike from $126.00 to $142.00. All this companies gave the retailer a buy rating. An outstanding one was MKM Partners who did not change their minds gave sell rating on shares of Nike. The company has an average rating of Buy and an average target price of $135.76.

 

Nike, Inc vs. Under Armour, 3 key factors to compare

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(Source: Google Images)

Most investors following either Nike (NYSE:NKE) or Under Armour (NYSE:UA) probably compare every key statistic between. But regarding what the decision there decision was in any previous analysis, now is a great moment to compare them again as the both have moved in different directions in the last 3 months. Nike stock rose about 16%, and Under Armour stock fell about 12%. There are a lot of factors that we can compare, but we believe this are the main ones.

  • Size: While both companies sell related products, Nike is more than 6 times bigger. If we compare the revenues Nike beats Under Armour by a big gap (8.4 times). One of the benefits that come with such a big size is that they can spend much more on marketing.
  • Growth: If we compare sizes clearly Nike has a greater advantage but for investors, particularly the ones that are thinking of buying in the footwear industry tend to think that future growth has bigger weight. Under Armour’s revenue is growing at a faster proportion than Nike’s, increasing 28% in the last 12-month period compared to Nike’s 8% growth during the same time lapse. But we have to take in to account that just because Nike’s revenues are below Under Armour doesn’t mean that they are taking over the industry. CEO Mar Parker has committed to grow the company’s revenues at an annualized rate of 10% between 2015 and 2020.
  • Valuation: This is a key factor to consider if you want to choose between them. If investors want to buy Under Armour stock they have to pay a premium, as they have a P/E ratio of 89 compared to Nike’s which is 33.We can also compare the price-to-sales ratio, which is 5.1 compared to Nike’s price-to-sales ratio of 3.7. An important thing that we have to take into account is that we can be misguided and think that Nike is cheap because if we compare it to the S&P both factors are much higher.

While both are outstanding companies and both still have a lot of growth ahead, investors might want to wait ant see what will happen with both of them in the upcoming months.

Conclusion

The footwear industry is very competitive at the moment and attracting new starts its going to be the one of the best way to increase sales and rise share price. We think that the signing of LeBron is going to show new stars that do not know where to sign how the company behaves with stars. That is, if you hold your end of the bargain by being one of the best in your sport you will have full loyalty from Nike. The split that they are about to do is going to help reach investors who cannot afford the current high price of 131.63. I Know First is bullish algorithmic forecast about this stock for the long term. Even though is not in our top 10 we expect the stock to raise for the upcoming year.

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