The 2016 summer Olympic games in Rio kicks off in August. The global sports extravaganza has in the past been a winning even for Nike (NKE). The athletic apparel giant has in the past successfully used the event to kick off new products.
According to some reports, about 3.6 billion people tuned in to the 2012 London games, with 100,000 hours of global television coverage and 150 million tweets.
But before ringing the cash register, investors will need to look closely at the growth in future orders Nike reports when it unveils fiscal fourth quarter financial results tomorrow, says UBS analyst Michael Binetti.
F4Q Futures Growth is Key. F4Q futures will be the first look at the growth rate to expect post-Olympics (F4Q futures extend to Oct/Nov). We estimate +11% global futures (ex-FX) in F4Q. Industry checks suggest Nike has already allowed retailers flexibility to lower orders for Fall to reduce channel inventories (we believe F3Q futures already started to reflect this). We believe NKE’s recent P/E compression suggests that the stock is pricing in risk to Street FY17 ests. In our view, if NKE can deliver +11% global futures growth in F4Q, it would imply a +HSD run rate post-Olympics—which should bolster conviction that NKE still has wholesale order growth to deliver its +HSD/LDD FY17 rev growth guidance (with an ongoing +3-4pp DTC lift), which should support P/E re-expansion vs the market.
What does this mean for the stock price?
Down 1.3% today to $51.91, Nike’s share price has fallen more than 20% since hitting a 52-week high of $67.65 in November. Yet Binetti sees the stock hitting $70 in the next 12 months.
In recent months, NKE’s P/E rel to the S&P has compressed from a 3-yr peak to a 3-yr trough. Despite recent macro/competitive pressures—and our view that NKE will guide 1Q below Cons (UBSe: $0.66, Street: $0.71) due to Olympics spend—we think NKE’s F4Q update will bolster conviction that FY17 rev & EPS guidance is still achievable— which should support a P/E re-rating back to historical avgs. Longer-term, we’re still forecasting Nike’s EPS to grow 2.5x faster than Consensus S&P EPS growth for the next 3-yrs. And with an ROIC that is 3x the S&P (reflecting a proven, global reinvestment opportunity), we believe NKE continues to warrant a significant premium vs the market.