Table of Contents
- Nike shares are up 10% following mixed results and they might gain another 30%.
- Normalization and DTC strength underpin results in FQ1.
- Dividends and share repurchases make this stock a winner for long-term investors.
- 5 stocks we like better than NIKE
Nike NYSE: NKE shares are rising after its FQ1 release. The report suggests that this leading shoe and apparel manufacturer’s business is normalizing, and there is potential for continued long-term growth. The question for investors is whether this stock is a good investment for the long term, and the answer seems to be yes. Despite existing challenges, Nike’s brand recognition, focus on direct-to-consumer (DTC) sales, and digital sales position it to outperform the sector and generate returns for investors.
One of Nike’s attractions is its position as a Dividend Achiever. A Dividend Achiever is a stock with a consistent history of dividend growth and an outlook for continued growth. Investors interested in Dividend Aristocrats should consider Nike as it is among the top-rated stocks. Nike has increased its dividend for 21 consecutive years and has shown a high compound annual growth rate (CAGR) of 11% in the past 5 years. Based on the payout ratio, the company has the ability to sustain dividend increases, making it a solid choice for Dividend Aristocrats.
Nike Reports Mixed Results
Nike’s latest financial report shows mixed results, but overall positive outcomes. While the company’s revenue fell slightly short of expectations, its bottom line showed strength. Internal metrics indicate strength and normalization within the industry, with Nike Direct sales (DTC channel) up 6% and digital sales up 2%. All segments contributed positively to regional results, although China’s performance was weaker than anticipated. The core Nike brand performed well, offsetting some weakness in Converse. Overall, Nike had a solid quarter, with higher-margin DTC channels leading the way.
The gross margin improved, but there was a slight increase in SG&A expenses. The increase in SG&A is attributed to wages and advertising, which are helping drive sales. Although the GAAP earnings grew only 1% compared to the topline increase, they beat the consensus estimate by a significant margin.
Nike Demonstrates Financial Strength and a Strong Capital Return Program
Nike’s dividend, share repurchases, and capital expenditures resulted in a cash drawdown compared to the previous year, but this is not a cause for concern. The company still holds over $8.75 billion in cash and manages its debt well. The cash flow is sufficient to sustain the current plans, although Nike may make adjustments in the future. In Q1, the dividend was complemented by share repurchases, resulting in an effect annualized yield of around 4.5%. The number of shares outstanding decreased by 2.7% year over year, and further repurchases are expected in the coming quarters and years.
Technical Outlook: Nike Stock Finds Support
Prior to the release of Nike’s financial report, there were concerns about weakness and margin strength, causing the price action to appear unfavorable. However, following the release, the stock has risen 10%, confirming support at a critical level and indicating a potential bottom. For further upward momentum, the stock needs to surpass the resistance level at $100. The next significant hurdles are at $110 and $130. A sustained rally would be indicated by a move above $130, otherwise, the stock may remain range-bound between $90 and $130.
While NIKE currently has a “Moderate Buy” rating among analysts, there are five stocks that some top-rated analysts believe may be better investments.
View The Five Stocks Here