Earnings

Earnings preview: how will Nike’s share price fare amid coronavirus panic?

Joining the likes of Oracle and Adobe, Nike is set to report its figures for 2020’s Q1 earnings season next week. How will Nike’s share price manage amid coronavirus panic?

With its share price battered by coronavirus and recession concerns, Nike [NKE] is set to report its results for the fiscal quarter ending February 2020 on Tuesday (24 March). Nike’s share price has lost 37.8% of its value in the month to 23 March.

Like many of the companies to have already reported this season, Nike is likely to discuss setbacks anticipated as a result of the pandemic’s spread, particularly as it has already taken the decision to close its stores across the US, Canada, Western Europe, Australia and New Zealand, effective last week.

 

 

 

With so much uncertainty around what the impact of the virus truly means for businesses, share price traders will be wanting clear reporting from Nike on how it expects its revenue and earnings figures to be impacted in the coming year, and they will want comment on how Nike plans to deal with the crisis. So, should traders expect a post-earnings bounce in Nike’s share price?

 

Nike to report earnings during a pandemic

In a recent report, Zacks highlights that so far there has been only “average” decline in Q1 estimates for companies reporting for the fiscal quarter ending in February, which somewhat contradicts the “actual and perceived disruptions” to normal business activities by the pandemic.

A key reason for this is the fact that a lot of companies have simply withdrawn earlier issued guidance because it is impossible to quantify the full extent of the pandemic’s impact.

“The ongoing market sell-off shows there isn’t a lot of confidence in these consensus expectations,” says Zacks. “That will likely change only once visibility on containment of the pandemic improves, which will enable companies to get a handle on the full extent of their exposure and the pandemic’s macroeconomic impact.”

“The ongoing market sell-off shows there isn’t a lot of confidence in these consensus expectations. That will likely change only once visibility on containment of the pandemic improves, which will enable companies to get a handle on the full extent of their exposure and the pandemic’s macroeconomic impact” - Zacks

As a result, much of what is being forecast by companies for the quarter is likely to be guesswork. Unless Nike reveals a reassuring action plan during its earnings call, its share price is still likely to see volatility in the next few months.

Zacks says the apparel maker is expected to post quarterly earnings of $0.62 per share in its Q3 report, which represents an 8.8% year-on-year decline. Elsewhere, revenues are expected to be $10.01bn, up 4.1% year-on-year.

The consensus EPS estimate for the quarter has been revised 9.26% lower over the past month, which illustrates how the prevailing sentiment among analysts covering the stock has evolved over time.

 

A billion-dollar drop

In the near future, Nike could suffer a $3.5bn drop in revenue for the fiscal quarter ending May (Nike’s Q4) as a result of the coronavirus outbreak, according to investment bank Cowen. This will result in a loss per share of $0.04.

Last week, Cowen told Reuters that the apparel maker is getting hit not only by store closures, but also the loss of promotional opportunities at prominent international events such as the NBA, which has been suspended due to the pandemic.

As a result, Nike may put some troubling estimates on the table for its fourth quarter when it reports results.

 

Market Cap$98.005bn
PE ratio (TTM)22.00
EPS (TTM)2.86
Quarterly Revenue Growth (YoY)10.20%

Nike share price vitals, Yahoo Finance, 23 March 2020

 

A stable business

Despite the downturn, Nike has strong fundamentals, according to Motley Fool’s Asit Sharma. It carries a “very low” debt load compared to its annual earnings capacity, he says.

“Nike also has incurred relatively modest borrowings, carrying just $3.5bn of long-term debt on its balance sheet, against shareholder equity of more than $9bn,” he adds.

While Nike's anticipated revenue decline is troublesome, the company is in a good position to weather the storm, even if the coronavirus impact stretches beyond Q4.

“For now, I'd advise long-term shareholders to simply hold on to the stock of this dominant athletics brand, despite its current turbulence,” says Sharma. Other analysts, however, are more optimistic. According to CNN, 21 of 32 analysts polled currently hold a “buy” recommendation on the stock. The average price target currently sits at $105, a potential 49% increase on 19 March’s closing price of $70.34.

Ahead of results, Nike has pledged more than $15m to help efforts to slow the virus’s spread and support those who may be struggling financially as a result of it. More than $10m of this donation comes directly from Nike co-founder Phil Knight, chairman of the board Mark Parker and CEO John Donahoe.

$15million

Amount pledged by Nike to help slow spread of coronavirus

 

The cash will be split between the Oregon Health & Science University, the Oregon Community Recovery Fund and Oregon Food Bank.

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