Morningstar

2 Reasons We're Optimistic About Nike

Though North American headwinds are unlikely to abate soon, the wide-moat company remains well positioned for the long term.

Securities In This Article
Nike Inc Class B
(NKE)

With the market bracing for the worst after negative updates from other athletic apparel/footwear companies,

The first is Nike's continued momentum outside North America, including double-digit currency-neutral growth in China, Western Europe, and emerging markets. This validates Nike's global brand-building strategies, which should reap future benefits as disposable income and athletic participation trends rise in these regions. The second is Nike's business model adjustments are adapting to evolving consumer views about personalization and technology ahead of its peers. This is evident in Nike's "triple-double" strategy focused on product innovation (better balancing performance and style), supply chain (prototype production enhancements that optimize personalization and speed to market), and direct-to-consumer investments (greater personalized shopping at Nike stores, running/training club memberships, and mobile app refinements). While these efforts may weigh on near-term margins, they should position Nike to withstand the pressures facing athletic apparel/footwear rivals and develop into a meaningful competitive advantage.

We believe these efforts will drive future demand and pricing power and support our five-year outlook calling for average annual revenue growth of 8%-9% and operating margins pushing 18% (versus 14% in fiscal 2017). While we'd wait for a wider margin of safety before building/adding to positions, we plan to maintain our $58 fair value estimate.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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