After months of outperformance, there's a yawning pit of
downside risk lurking beneath many consumer discretionary
stocks. Yet strong companies whose shares have lagged the
sector deserve a look. Those criteria have led me to footwear
and athletic apparel king
Nike (NYSE: NKE).
Just shy of a slam-dunk
With a core brand that's synonymous with global sports
culture, active living, and big-name endorsers, there's a lot
to like about Nike. First, the company's culture of nonstop
product innovation should continue to carry its brands to the
forefront of consumer awareness, even as the recession drags
on. In addition, its product portfolio strides across
multiple price points, from Converse All Stars to Air Jordans
-- another strength made more noteworthy by tough times. What
stands out most, however, is Nike's global footprint: In
fiscal 2009, international sales represented 58% of total
revenue, up from 53% in fiscal 2007. Indeed,
diversifying away from U.S. consumersnever looked
smarter.
Lately, the market's tidal wave of enthusiasm has largely
bypassed Nike shares. Year to date, the stock's trailed both
the consumer discretionary group and the S&P 500.
Meanwhile, the company's most recently reported quarterly
revenue was down only 7%, or flat on a currency-neutral
basis. That beats the scales off the embattled
Crocs ' (Nasdaq: CROX)
recent performance.
Of course, that's an easy comparison. To see how Nike
stacks up against stronger competitors, I've assembled the
table below. Debt and interest coverage metrics suggest how
well each company can withstand a prolonged sales slump,
while
return on invested capital(ROIC) disregards potential
differences between companies' financing and accounting
choices, offering a truer picture of operating earnings
power.
Company
Market Cap
5-Year Average ROIC
Long-Term Debt-to-Equity
Times Interest Earned
Nike
$28.4 B
19.7%
5%
N/A
VF (NYSE: VFC)
$8.1 B
13.7%
41%
8.8
Under Armour (NYSE: UA)
$1.5 B
16.1%
3.5%
32.2
Volcom (Nasdaq: VLCM)
$416.3 M Continued... |