* Reports Q3 2019 results on Thursday, March 21 after the market close
* Revenue expectation: $9.6 billion
* EPS expectation: $0.64
Nike's (NYSE:NKE) powerful rally this year shows that investors have strong belief in the world’s largest sportswear giant’s growth momentum. And there is a little reason to question their faith.
The company has shown sales growth in its two most important markets: China and North America. During the second-quarter, which ended on Nov. 30, Nike posted the 18th consecutive quarter of growth in China, the world’s most populous country, which proved Nike’s fastest-growing. This impressive growth performance provides a strong indicator that Nike products have so far remained insulated from the slowing Chinese economy and its trade dispute with the U.S.
The latest evidence of this strength is expected tomorrow, when Nike reports its third-quarter earnings. Analysts, on average, expect $0.64 a share profit with sales growing 7% to $9.6 billion.
And, riding high on the crest of this robust expansion, Nike shares have surged almost 20% this year, driving gains over the last 12 months up to 33.5%.
On the domestic front, the company has been able to revive sales growth, helped by strong consumer demand, job gains, and the tax cuts which pushed retail spending higher. But this positive macro environment isn’t the only reason why Nike is doing well. The company’s recent efforts to restructure its business, focusing on its largest markets and revamping its online business, are also paying off.
Nike’s Triple Double Push Is Paying Off
As part of the “Triple Double” campaign, the company is doubling its resources on its digital properties, accelerating innovation and product creation, and deepening one-to-one connections. The result of these efforts is that Nike is grabbing a greater market share from its main European rival, Adidas (OTC:ADDYY), even in its home market, while outperforming in the major growth markets of Asia.
Encouraged by these positive undercurrents, during its second-quarter earnings conference call in December, the Beaverton, Oregon-based company boosted its full-year outlook for both revenue growth and gross margin. Nike said it now expects currency-neutral revenue to be in the high single digits over the full year.
This positive momentum bodes well for Nike’s faithful investors, who have relied on the company’s dividend payments and understand the cyclical nature of its business. Nike stock currently pays $0.22 per share on a quarterly basis, translating to an annual dividend yield of 1%.
That yield obviously doesn’t look attractive when compared to other high-yielding stocks in the market. But analyzing stocks just based on their yields isn’t a good approach. The best dividend stocks are the ones whose payouts are raised regularly. Nike has hiked its payout for 15 consecutive years.
Bottom Line
Trading near a record high, Nike stock had a great run last year, which appears set to continue if the economy remains favorable. If you already own Nike stock, we don’t see any reason to sell them now. The company has managed to create new growth momentum through its business restructuring. For new investors, however, it would be better to wait for a more lucrative entry point to take a long-term position in this great brand.