Nike Up On Double-Shot Of Upgrades

The Coronavirus Entry Point

Nike (NKE) got a much-needed injection of analyst confidence this morning and saw its shares surge at the open. Up 4.0% in morning trading, this consumer giant is poised to move higher over the next few weeks.

The first shot of good news came early this morning when UBS analysts Joe Sole upgraded to stock to buy from neutral. In his case, the company has a positive long-term view driven by product innovation and a focus on e-commerce. If you will remember, Nike recently exit its agreement with Amazon in favor of a partnership with Footlocker.

Nike and Footlocker together are building out a fully-fledged e-commerce site and strategy that is expected to drive revenue increases for both companies. Nike says it wants to provide a premium experience for its customers and can’t do that as well with Amazon.

The core of the problem is data-tracking and Amazon’s lack of physical stores. Nike wants to use data gleaned from online sales to tailor the in-store customer experience. Mr. Sole cited the e-commerce business when he raised his five-year revenue target. His target for share prices is well above the prior street high and represents a 40% upside to today’s price.

A Wave Of Upgrades To Drive Prices Higher

Shortly after the UBS upgrade, JP Morgan restated its case for Nike during a call to investors. During the message, analysts cited its low valuation versus the long-term outlook for growth. The consensus estimate for 2020 EPS growth is over 20%, growth will moderate in 2021 but remain strong near 15%. Considering the strength of revenue and sales growth seen in eCommerce these estimates are likely low.

The company has been rising on a wave of upgrades that began last fall. Over the last 90 days nearly 100% of sell-side analysts covering the stock have raised their targets. The average rating is very bullish but there is still room for it to improve. Nine of the thirty-three current ratings are neutral or bearish providing ample fuel for the analyst's driven rally.  Nike next reports earnings in late March and will likely beat consensus. The company has only missed consensus once over the last five years.

A Dividend Aristocrat In The Making

Nike is not what I would call a great dividend, the yield is only around 1.0%, but is a great dividend payer and dividend growth stock. The company has been increasing its dividend regularly for 18 years putting it within easy reach of Dividend Aristocrat status. While not a near-term driver of share prices it will help over the long-term as all those Aristocrat-focused funds and traders pile on board.

Until then, investors can rest assured the dividend is safe from the cash-flow perspective. The payout ratio is a low 32.4% which leaves ample room for future increases. The next increase is due later this year and expected to be double-digit. The five-year CAGR for the distribution is near 13%.

The Technical Outlook Is Bullish

Today’s upgrades reaffirmed Nike’s position as a global retail giant despite the threat the coronavirus poses to world trade. The initial move of 4% fell short of the moving average but momentum carried price action above that mark by mid-morning. The indicators are mixed but consistent with a bottom at the $96 level. The caveat is that MACD is still bearish and there are some red flags to worry about.

The most notable is the MACD peak that formed last week. The bearish peak is not an extreme peak but is strong enough to suggest prices could wallow at current levels a few weeks before moving higher. It is possible that support could be retested near $97.50 before Nike moves up to retest the all-time high.