Mohit Oberoi
4 min read
In This Article:
Nike (NKE) is set to release its fiscal Q4 earnings tomorrow, June 26, after the close of markets. With a YTD loss of 19.2%, the sneaker giant is heading into the confessional as one of the worst-performing Dow Jones ($DOWI) constituents. Sell-side analysts have also been trimming Nike’s target price ahead of the report to reflect the company’s fundamentals.
The pessimism is not unwarranted, as Nike faces multiple challenges, which its price action aptly backs. The stock’s returns have lagged markets for quite some time now, and it closed in the red for three consecutive years. Currently, NKE trades at just over one-third of its all-time high, which it reached in November 2021. The company’s market cap has fallen below $100 billion, while the plunging stock price has catapulted its dividend yield to 2.6% or roughly twice what an average S&P 500 Index ($SPX) constituent pays.
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While Street sentiments toward Nike is quite somber ahead of the fiscal Q4 report, in this article, we’ll examine whether it’s time to be a contrarian and buy NKE stock before earnings.
To begin with, let’s look at Nike’s Q4 earnings estimates. Consensus estimates call for Nike’s revenues to fall 15.1% year-over-year to $10.7 billion in the fiscal fourth quarter. The estimates are in line with the company’s guidance, as during its Q3 earnings call, Nike said that it expects sales to fall “mid-teens range, albeit at the low end.”
Analysts expect the company’s sales to fall 1.4% in the current fiscal year also as there looks to be no easy reprieve for the company’s woes. That said, it will be crucial to watch Nike’s revenue guidance as the company recently increased prices and started selling its products on Amazon (AMZN), which should help bolster its sales in the current fiscal year.
Nike forecast a further 400-500 basis point contraction in its Q4 gross margins amid the restructuring. Analysts are predicting the company’s earnings per share (EPS) to plunge 89% YoY to $0.11 in Q4. For the current year, analysts expect the metric to fall 12.1% to $1.88.
Earlier this week, Truist Financial and Evercore ISI lowered Nike’s target price from $82 to $73, and $97 to $75, respectively. These are not isolated actions, and this month only, Deutsche, Barclays, Needham, and Morgan Stanley have lowered Nike’s target price while maintaining their ratings.
