Nike Flying High Ahead Of Earnings

Dow component Nike Inc. (NKE) posted an all-time high at 120.48 earlier this week, with buying pressure driven by the successful launch of the new National Football League season. The sports and apparel giant is highly-dependent on the high visibility gained through televised sports, as evidenced by a sharp revenue decline in the first quarter, when baseball, basketball, soccer, and planning for the 2020 Tokyo Olympics came to a crashing halt.

Nike Buyers Ignoring Mixed Guidance

Nike missed fiscal Q4 2020 top and bottom line estimates by wide margins in June, posting a loss of $0.51 per-share on a crushing 38.0% year-over-year revenue decline. The stock sold off but bottomed out quickly after the news, even though the company guided the next 12 months to breakeven or just above breakeven, which should not justify a breakout to new highs. As a result, it could be risky to hold the stock when it reports Q1 2021 results next week.

Pivotal Research Group analyst Mitch Kummetz raised their price target from $118 to $137 on Thursday, noting “our estimates are well above consensus. We’re modeling a 9% sales decline, which would represent significant sequential improvement from Q4 2020. This expected improvement mostly reflects that COVID had much less impact on this three-month period than the prior three months. That said, Q1 2021 was not without some COVID pressure, namely a disrupted selling season.”

Wall Street And Technical Outlook

Wall Street consensus is wildly bullish, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and just 3 ‘Hold’ recommendations. One analyst disagrees, and is advising shareholders to sell their positions and move to the sidelines at this time.  Price targets currently range from a low of $95 to a street-high $150 while the stock opened Thursday’s session about $4 below the median $121 target. Higher prices into earnings are possible, given this mid-range placement.

Nike completed a 56-point round trip into the January 2020 high in June and spent the next two months carving the handle of a well-formed cup and handle pattern that broke to the upside in August. The stock has added about 15 points since that time, reaching the 1.272 Fibonacci rally extension. Accumulation readings have matched bullish price action, step-for-step, confirming a healthy breakout that may just need a short breather to shake off overbought technical readings.

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