NIKE releases its first quarter 2023 financial results after the closing bell on Thursday, September 29, 22.
The sell-side consensus expects $0.94 in earnings per share on $12.3 billion in revenue for expected annual growth of -19% and +1% respectively.
Based on current estimates, the second quarter of fiscal 2022 expects EPS of $0.74 on revenue of $12 billion for expected growth of -11% and 6%, respectively.
The big challenge with Thursday night’s release is that the first quarter of 2023 still faces a tough comparison to the first quarter of 22, when NIKE’s revenue grew 16% year-on-year, operating profit of +20% and EPS of +22 year-on-year.
The good thing is that NIKE’s next three quarters from Q2 23 through Q4 23 face the following comparisons to fiscal 2022:
revenue | op inc | PES | |
q2 ’22 | +1% | -13% | +6% |
q3 ’22 | +5% | -3% | -3% |
q4 ’22 | -1% | -23% | -3% |
Source: evaluation spreadsheet
Let’s look at NIKE EPS and revenue revisions:
Here is a table summarizing the erosion of NIKE’s EPS/revenue estimates:
tax ’23 | tax ’24 | tax ’25 | |
PES | -24% | -20% | -20% |
revenue | -seven% | -seven% | -seven% |
This table shows the degree of negative EPS and revenue revisions since 12/31/21 for fiscal years ’23, ’24 and ’25.
Full-year 2023 is currently expected to see 12-month EPS growth of -3% on expected revenue growth of 7%, and those expected growth rates will likely continue to decline this week.
Technical analysis:
This weekly chart shows the stock trading below its 200-day weekly moving average and early July 22 low of $99 per share.
The stock is now oversold on a weekly chart, but I also can’t tell you that it won’t drop significantly if we see a sharp decline in the market over the next 10 days.
On Covid, March 20, the lows were near $60 per share.
Evaluation:
Evaluation metric | NKE at $97 per share |
EPS avg exp over 3 years gross | 12% |
Avg exp 3 years gross rev | 9% |
Price/sales ratio | 2.5x |
PE ’23 and ’24 | 27x and 22x |
Price to book | 10x bv |
Price/cash flow ratio | 30x |
Price/free cash flow ratio | 35x |
free cash flow yield | 3% |
Morningstar Intrinsic Value | $133 |
Source: evaluation spreadsheet
Summary / Conclusion: Given the current sluggishness in US and global stock markets, there is always the likelihood of further decline for what is one of the world’s leading brands.
However, for a stock that is still expensively valued, bear markets are the perfect time to buy big name brands at discounted prices from their fair value.
Clients currently hold a small position in NIKE, but the goal is to grow it into a larger position as fear grips financial markets and distorts company valuations.
When things get really dark, the company valuation doesn’t change as much as the stock valuation, so you have to think about buying a big company at a discount.
NIKE is not without its problems. Europe and the issues around Ukraine and the predicted crushing price of natural gas this winter will decimate (or are expected to decimate) consumer spending, which would likely impact NIKE footwear and apparel. Western Europe accounts for 27% of NIKE’s total revenue and 64% of NIKE’s EBIT (or operating profit), while China accounts for 13% and 22% respectively of the same metrics.
Readers don’t often get the chance to buy a world-class brand down 44% from all-time highs like NIKE’s stock is today. If the US stock market turns dark, know in advance which stocks you want to hold.