Nike is in fashion

Nike is in high demand as popularity in China is proving to be profitable.

Source: Bloomberg

The company will report its second-quarter results on 22 December, and traders are expecting earnings per share of 85.5 cents and revenue of $7.8 billion. That compares with the first-quarter EPS and revenue of $1.34 and $8.41 billion. Nike has posted better-than-expected profits for the past nine quarters.

Nike will report its full-year results in June 2016, and dealers are expecting EPS of $4.3 and revenue of $32.8 billion. These forecasts represent a 16.2% rise in EPS and a 7.1% jump in revenue.

The company had a stellar start to the financial year as revenues and net income for the first-quarter continued to climb higher. While many Western exporters are feeling the effect of the slowdown in China, Nike’s Chinese division posted a 51% jump in EBIT, which was assisted by faster online sales and a revamping of stores.

Its popularity in China is here to stay as the future orders from the country was easily ahead of the future orders for the company as a whole. The firm is not just depending on the second-largest economy in the world for its success, Nike’s biggest market is North America – which accounts for over 40% of global revenue, and that region saw sales rise by 8%.

The majority of group revenue comes from footwear and Nike is still squeezing out more sales. The rise of leisurewear in everyday life is proving to be extremely profitable for the company, and women’s wear is an area that has seen a noticeable rise in recent years. Nike is still signing up the biggest sports stars on the planet for sponsorship, and the lifetime deal with LeBron James was the first of its kind, which highlights the firm’s innovation is not just confined to fashion designs.

Investment banks are very bullish on Nike, and out of the 33 ratings, 27 are buys, and six are holds. The average target price is $142.76, which is 13% above the current price.

Equity analysts are bullish on Adidas, and out of the 43 recommendations, 17 are buys, 20 are holds, and six are sells. The average target price is €89.47, which is 3% above the current price.

The number of short positions on Nike has declined by 43% since the company posted its first-quarter numbers.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG

Over the years, Nike has been a very consistent performer, gaining 570% since the 2009 low. Every once in a while we will see a jitter, yet every pullback in the last six years has been temporary and retrospectively seen as a good buying opportunity. We are seeing one such pullback right now and thus it is worth looking for signs of bullish resurgence to play into this long-term bull trend.

Looking at the four-hour chart, the clear initial resistance level that needs to be taken out would be $130.14, where a closed candle above this level would bring a more bullish outlook going forward. Subsequent resistance levels of note would be $133.32 and $134.20.

However, until we see that break back towards the upside, there is a chance that the selling could grind lower once more, with a break below $125.20 needed to continue this retracement. 

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