Business Buy, sell or hold? Nike (NKE) and Foot...

Buy, sell or hold? Nike (NKE) and Foot Locker (FL)

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Stubborn inflation, the Fed’s aggressive rate hikes and the turmoil in the US banking sector are paving the way for a recession this year. Therefore, I think now is not the right time to consider investing in Foot Locker (FL) and NIKE (NKE). Read more.

The Fed’s commitment to controlling inflation is taking a toll on consumer spending and impacting demand from the recreation industry. Therefore, I think now is not the right time to invest in NIKE, Inc. (NKE) and Foot Locker, Inc. (FL).

The rise in obesity due to sedentary lifestyles and high-calorie diets, coupled with growing awareness of fitness benefits, is driving the growth of the fitness and recreational sports centers market.

IMARC Group expects the global fitness and recreational sports center market to reach $153.0 billion by 2028, representing a CAGR of 4.9% until 2028.

On the other hand, in April 2023, prices had increased by 4.9% compared to April 2022, according to the 12-month percentage change in the Consumer Price Index, the monthly inflation rate for goods and services in the United States.

Inflation is still a long way from the Fed’s target rate of 2%, which could prompt the Fed to hike further rates.

In addition, the economy saw a string of the biggest bank failures since the 2008-2009 financial crisis, which everyone from Federal Reserve staff economists to major bank CEOs were talking about. increasing recession risks. Growing recession fears have dampened consumer demand.

Stock to hold:

NIKE, Inc. (NKE)

NKE designs, develops, markets and markets athletic footwear, apparel, equipment and accessories for men, women and children worldwide.

On April 25, 2023, Cognizant Technology Solutions Corp. (CTSH) announced a new agreement to transform and support the technology business of NKE, the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories.

On May 4, NKE announced a quarterly dividend of $0.34, payable July 5, 2023. The company pays an annual dividend of $1.36, which translates to a yield of 1.26% at current price levels. It has a four-year average dividend yield of 0.92%.

NKE’s EV/Sales forward of 3.29x is 189.8% higher than the industry average of 1.13x. It’s forward P/S multiple of 3.25 is 293.8% higher than the industry average of 0.83.

NKE’s revenues increased 14% year-over-year to $12.39 billion in the fiscal first quarter ended February 28, 2023. Gross profit increased 6% year-over-year to $5.37 billion. However, earnings per share fell 9.2% year-over-year to $0.79 and net income fell 11.2% year-over-year to $1.24 billion.

NKE’s revenue is expected to grow 2.8% yoy to $12.57 billion for the fiscal fourth quarter ending May 2023. On the other hand, earnings per share are expected to grow 33.6% yoy fall to $0.66 in the same quarter. Also, it has topped revenue and earnings per share estimates in each of the next four quarters, which is impressive.

The stock is down 15.3% over the past month to close out its last trading session at $105.20.

The stock has an overall rating of C, which translates to a Neutral in our POWR ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor optimally weighted.

NKE also has a C grade for growth, stability, sentiment and momentum. It ranks number 10 out of 37 stocks in the Athletics & Recreation industry.

click here to see the additional NKE (value and quality) POWR ratings.

Stock to sell:

Foot Locker, Inc. (FL)

FL is a footwear and apparel retailer in North America, Europe, Australia, New Zealand, Asia and the Middle East.

FL’s forward EV/EBITDA of 10.55x is 11.8% higher than the industry average of 9.44x. The forward EV/EBIT multiple of 17.62 is 37% higher than the industry average of 12.86.

On May 17, FL announced a quarterly dividend of $0.40, payable July 28, 2023.

The company pays an annual dividend of $1.60, which translates to a yield of 6.18% at current price levels. It has a four-year average dividend yield of 3.33%.

During the fiscal first quarter ending April 29, 2023, FL’s total revenue declined 11.3% year over year to $1.93 billion. Net income fell 72.9% year-over-year to $36 million, while earnings per share fell 72.3% year-over-year to $0.38.

FL’s earnings per share are expected to fall 96.5% year over year to $0.04 in the fiscal second quarter ending July 2023. Revenue is expected to fall 9% year over year to $1.88 billion for the same quarter.

The stock is down 44.9% over the past three months to close out its last trading session at $24.61.

FL’s grim outlook is reflected in the POWR ratings. The stock has an overall D rating, which translates to a sell in our POWR rating system.

FL also has an F grade for growth and sentiment and a D for momentum and stability. It ranks #36 in the same industry.

To access additional FL POWR ratings for value and quality, Click here.

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NKE shares traded Tuesday morning at $105.84 per share, up $0.64 (+0.61%). Year-to-date, NKE is down -8.99%, versus a 12.19% increase in the benchmark S&P 500 index over the same period.


About the author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor’s degree in finance and marketing and attends the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

More…

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