Nike is Off and Running for the Holidays
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According to Yahoo! Finance's description of the company, NIKE (NYSE: NKE), together with its subsidiaries, engages in the design, development, marketing, and sale of footwear, apparel, equipment, and accessories for men, women, and children worldwide. The company offers products in seven categories, including running, basketball, football, men’s training, women’s training, NIKE sportswear, and action sports. It also markets products designed for kids, as well as for other athletic and recreational uses, such as baseball, cricket, golf, lacrosse, outdoor activities, football, tennis, volleyball, walking, and wrestling.
A big upgrade:
HSBC Securities recently gave Nike an upgrade to overweight from neutral, lifting its previous price target of $101 for the company and re-establishing a $112 target. Excessive cash generation was most likely one reason for the upgrade, and the clearing out of inventory was another. Inventory should continue to move at a brisk pace throughout the holidays as well, as consumers grab gifts for the upcoming Christmas season. The company, in conjunction with Microsoft (NASDAQ: MSFT), has announced an Xbox 360 bundle for the holidays, called it the Nike+Kinect training bundle. This is one of a few steps the company is taking to immerse itself into the digital world as well.
Nike is already good at generating and stashing away cash, while simultaneously managing to keep debt low:
Opening up to shareholders:
Nike is also rewarding shareholders. Nike's payout has increased almost 60% in the last five years, and most recently the company has announced a two-for-one stock split, accompanied by another dividend increase as well. Nike will trade at a split-adjusted price on Dec.26. The company also initiated a share buyback program in September. Nike's CEO Mark Parker commented on their dedication to shareholders, stating:
"Nike has a consistent track record of delivering value to our shareholders... Over the last 11 years the company has returned over $14 billion to shareholders through dividend payments and share repurchases. Today’s increase, together with the four-year, $8 billion share repurchase program announced in September, reflects our commitment to delivering value for our shareholders and the ongoing confidence we have in our strategy to generate long-term profitable growth and strong cash flows. I’ve never been more confident and excited about our future growth opportunities."
The stock currently trades at a slight premium, but it may be warranted, considering the company's revenue and dividend growth prospects. The company was one of the top 50 highest dividend growers in November. Nike is also very shareholder friendly, with a rock solid balance sheet that's almost free of debt. The company is trading in between its 52 week range of $85.10 and $114.81, and according to analysts could see significant upside from its current price of around $98.00.
Nike, with a $44 billion market cap, is by far the industry leader in footwear and apparel, dwarfing their biggest competitor Adidas' (NASDAQOTH: ADDYY) $18.5 billion market cap. Nike is financially strong and has a history of looking out for shareholders with dividend increases and stock buybacks. They are also a strong cash generator that should not only be able to easily cover their current payout ratio, but also continue to grow their dividend going into the future as well.
The company also stands out from competitors with its strong brand recognition and portfolio of professional athletes that they sponsor- from Rory McIlroy to Lebron James. They also own the Jordan brand, which is another iconic and successful brand. Nike is also cutting the fat, recently completing the sale of its brand Umbro to Iconix (NASDAQ: ICON). Iconix paid a cool $225 million to Nike for the brand. Nike will now focus on its core brands to steer its way to further success.
The company would make a good addition to any long-term portfolio as a company with very bright prospects, especially as a dividend growth company.
Jharry1 owns shares of Microsoft and Nike. The Motley Fool owns shares of Microsoft and Nike. Motley Fool newsletter services recommend Microsoft and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!