Where Does Nike’s Valuation Stand ahead of Its Q3 2019 Results?

Nike’s forward PE multiple

On March 18, Nike (NKE) was trading at 12-month forward PE multiple of 28.7x. The company’s valuation multiple has risen 24.3% since its announcement of its fiscal 2019 second-quarter earnings results in December 2018.

As we discussed earlier in the series, Nike delivered strong revenue and earnings growth in the second quarter. Nike displayed strength in its footwear and apparel businesses and also impressed with a 9% rise in its North American revenue.

Where Does Nike’s Valuation Stand ahead of Its Q3 2019 Results?

Peer comparison

On March 18, Nike’s peers Lululemon (LULU), Under Armour (UAA), Skechers (SKX), and Columbia Sportswear (COLM) were trading at 12-month forward PEs of 32.8x, 60.7x, 15.5x, and 23.3x, respectively.

Nike is trading at a premium valuation compared to the broader market. The S&P 500 had a forward PE of 17.3x on March 18.

Growth expectations

Analysts expect Nike’s revenue to rise 8.0% to $39.3 billion and its adjusted EPS to rise 11.7% to $2.67 in fiscal 2019, which ends on May 31, 2019. The company’s adjusted EPS growth in the current fiscal year is expected to be driven by higher revenue, an enhanced gross margin, and a lower share count.

Currently, Nike’s revenue is expected to rise 7.8% to $42.4 billion in fiscal 2020 driven by international expansion and improved momentum in North America. Analysts expect Nike’s adjusted EPS to grow 18.4% to $3.16.

The adjusted EPS of Lululemon, Under Armour, Skechers, and Columbia Sportswear are expected to rise 44.8%, 25.9%, 9.4%, and 10.0%, respectively, in the current year.

Nike and its peers are seeking growth in categories such as athleisure and further expansion in international markets. Nike is also looking for further penetration in the women’s apparel and footwear businesses. Digital revenue growth is also expected to be a key driver for Nike.

Nike’s upcoming results for the third quarter of fiscal 2019 and any changes to its outlook will likely affect its valuation.