This Company is Purchasing $5 Billion of Its Own Stock

Crista Huff
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Posted: Jun 12, 2012 12:01 AM

While sports enthusiasts focus on the Euro 2012 soccer championship, stock enthusiasts should be focusing on a growing leader in the global soccer goods market.  NIKE now has a 36% market share via its sports apparel and equipment products, almost equalling the long-dominant Adidas which holds a 38% market share.

NIKE, Inc. (NKE, $107.46) is a world leader in the athletic apparel & equipment market.  NIKE markets its products to over 170 countries, with an audience ranging from the non-athletic consumer to college & professional sports teams.  Its footwear business alone dominates 50% of that market.

A small percentage of the company's products include the brands Cole Haan and Umbro, which it plans to divest by year-end 2013, and also Converse, Hurley, and Nike Golf.  "We view this [divestiture] as a positive as this focus should enable to company to invest resources on the highest potential opportunities for Nike such as Nike, Jordan, Converse, and Hurley," says Citi Investment Research & Analysis (CIRA).  CIRA recommends a "buy" on NKE stock, and continues, "NKE is a solid global growth opportunity with exposure to emerging middle classes, has a heritage of innovation and creating new categories, is in the midst of strong product cycles, has compelling revenue and margin channel drivers (in addition to international, also direct to consumer retail and eCommerce channels)."

NKE Chart

NKE data by YCharts

2011 was a record year for NIKE.  They achieved revenues of $20.9 billion and net income of $2.1 billion.  S&P comments, "We see revenues reaching $24.2 billion in FY 12 (May) and $26.7 billion in FY 13, supported by product innovation, category penetration, and geographic expansion.  The company has also launched new retailing and marketing strategies designed to more closely align its operations with key markets."  NIKE is capturing global market share, especially in China and emerging markets.

Wall Street expects earnings per share (EPS) to increase 12%, 17% and 16% in fiscal years 2012 through 2014.

Standard & Poor's Research (S&P) assigns NIKE Inc. a Qualitative Risk Assessment of Medium.  "Our risk assessment reflects what we see as NKE's strong financial and operating metrics, offset by an increasingly competitive global marketplace and weak consumer spending in the U.S. and Europe."  Margins have been under pressure from slow-moving merchandise in China and Europe, higher product costs, and adverse currency effects.  NIKE's long-term debt ratio is 3%.

S&P carries a 4-Star Buy rating with a 12- month price target of $130.  S&P gives NKE stock a 100% Investability Quotient Percentile, which means "NKE scored higher than 100% of all companies for which an S&P Report is available."

The 2012 price earnings ratio (PE) is 21.8, and the dividend yield is 1.33%.  The ten-year PE range has been between 10 and 26, without any aberrations in the range.

The company has a $5 billion share repurchase plan in progress, and has repurchased $1.9 billion in shares through FY 2011.

NKE stock has been marching upwards, with intermittent price corrections along the way, for many years.  After reaching a new high of $114.81 in May 2012, the stock corrected with the market and has settled into a trading range of $104 to $112.

It is a little early to know whether the U.S. stock markets have stabilized after their recent pullback.  The job of the investor remains to identify good stocks, and good prices at which to buy them.  NIKE is a company whose stock will likely please growth stock investors.

For Townhall readers we’ve published our 2012 model portfolio for Trading and Aggressive Growth. For our subscribers, we’ve created model portfolios for Growth and for Growth and Income.  

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