MorningWord 3/21/14 – Two Worlds One Cup: $NKE

by Dan March 21, 2014 9:32 am • Commentary

Last night Nike (NKE) reported their fiscal Q3 that was better than expected on most every metric, while also suggesting futures orders would be higher than the consensus estimate.  The one hiccup, causing the shares to decline almost 3% in the pre-market, was weaker than expected forward guidance, hampered by the effects of having to sell almost half their product outside the US.  On the conference call, Nike’s CFO Blair suggested, “headwinds have been a significant drag on EPS growth so far this year, and we expect to face ongoing pressure in the fourth quarter and into next year”.  

If you are a NKE shareholder, last night’s report and guidance is probably not a horrible result when you consider the catalyst of the World Cup in June/July increasing sales and potentially offsetting any currency hit.

Heading into the report though, the technical set up looked like the stock was at a bit of an inflection point, consolidating just below the prior high from late last year.  Those focused on technicals will want to get a sense as to whether or not the rejection at $80 was the start of a double top, or whether the stock is building steam for a breakout.

The stock at $77 is through the March low, while the $75 level on the downside will be the next fairly important support level as it was the level it broke down from in January on its way to $70.

NKE 1yr chart from Bloomberg
NKE 1yr chart from Bloomberg

As for NKE, we would be buyers at $70 in front of the World Cup, but at current levels trading at 23x next year’s expected earnings, we don’t really see the value.

As we get closer to Q1 reporting season, the strengthening dollar vs most emerging market currencies may be the new “weather card”, and large US multi-nationals will have no shortage of excuses for crimped earnings outlooks.  This will be a trend to watch, and it may be baked into the cake by the time we get to the meat of earnings in mid April.