Analysts have recently shed some light on two well known companies, Nike Inc (NYSE:NKE) and LinkedIn Corp (NYSE:LNKD). With Q1 earnings in, its no surprise that analysts are adjusting their estimates. While things are looking up for Nike, this may not be the case for Linkedin. Let’s take a closer look.
Nike has recently received an Outperform rating and price target of $70 from Baird analyst Jonathan Komp. Komp retorts, “We believe NKE is well positioned to drive constant-currency EPS increases of 15%+ and revenue growth in the high single- to low double-digits, while generating attractive returns on capital and free cash flow.”
The analyst highlighted some overall positive takeaways from Nike’s FQ3-16 10-Q, which the company filed earlier this week. Komp noted that North American inventory was improving, mentioning, “NKE has expressed confidence that its in-line channel inventory position would be clean by the end of FQ4, and the company has made significant progress with North America inventory up only +8% at quarter-end (after four quarters >20% growth).” Specifically, sportswear and Jordan brand performance were indicated as areas of strength across not only North America, but in most other geographic segments as well.
The analyst also comments on product costs turning favorable, and DTC remaining strong. Nike recently updated its description of futures to state that both wholesale and internal DTC orders are included. However, actual futures calculations remain unchanged. Komp also addresses a recent negative gap in reported revenue vs futures, reassuring, “We came away from a recent discussion with NKE more confident that the recent negative gap in reported revenue vs. futures can normalize during F2017.”
Additionally, the analyst mentions he is updating F2017E EPS to incorporate a more back-weighted assumption, due to potential demand creation timing. Komp elaborates, claiming, “We are holding F2017E EPS of $2.45 (+13.8%; guidance +low-teens), but now are assuming even more back-weighted growth reflecting heavily front-weighted demand creation investments for Euro 2016 and the Olympics (now projecting FQ1-17 demand creation +25%).”
With this being said, the analyst confirms there is still no change in the full year estimates, and reiterates his positive Outperform stance on Nike. The $70 price target according to the analyst reflects a target P/E 25X, the analyst’s NTM+1 estimate, and a premium to the company’s two and five year average multiples of 24X and 21X, respectively. Komp notes, “In our opinion, factors supporting a premium valuation include NKE’s strong near-term operating momentum and healthy long-term growth prospects.”
According to TipRanks, Jonathan Komp has a 33% success rate recommending stocks with with an average return of 2.2% per recommendation. Out of the 17 analysts who have rated in the last 3 months, 15 are bullish while 2 remain neutral. The average price target for the stock is at $71.06, marking a 19.59% upside from where shares last closed.
The recent increase in online job postings and valuation of SaaS companies, namely, Salesforce.com, ServiceNow Inc., and Workday Inc., may be taking a toll on the popular professional networking company Linkedin, but does this mean a permanent downfall for the popular business oriented site? Rob Sanderson, Managing Director and analyst at MKM Partners, has recently downgraded the stock from a Buy to Neutral, with a 12-month price target change of $130.00.
Although the analyst has confirmed a negative rating change for LNKD, he reassures that this is most likely not permanent, and the consensus for long-term valuation remains positive. Sanderson elaborates mentioning, “We think that any softness in this business, even if macro-driven, would be interpreted as a TAM issue. While the stock has already been dramatically revalued and we remain positive long-term, we think risk-reward is not favorable in the near-term and are moving to the sidelines and downgrading to Neutral.”
Sanderson explains that the majority of Linkedin’s business is related to job seekers and recruitment, and recalls, “Growth in online job postings has been a tailwind, but appears to have peaked and online postings declined in Q1 for the first time since the recovery began six years ago.”
Lets delve a little deeper into the main issues at hand. Linkedin’s Talent Solutions business appears to have shown a directional correlation with online jobs listings, with data on U.S. online job listings turned down for Q1. The analyst notes that the new 2016 forecast for $3.6Bn in revenue is at the low-end of guidance and below consensus. He claims, “Our EBITDA forecast of $974mn in 2016 is 5% below previous and $1.2Bn for 2017 is 13% lower.” LNKD has already been revalued lower, trading at 13x 2016E EBITDA.
In order to regain investor confidence, Sanderson believes the company should focus on re-accelerating hiring revenue, a break-out in Sales Solutions, sustaining inflection in user engagement metrics, and finally, momentum in the acquired eLearning business.
Overall, things have not been looking great for LinkedIn. The company has been the worst performing stock within the broader Internet Sector this quarter, down 41% since before its last report. Sanderson claims, “We think expectations are low and that the valuation collapse is overdone, but we also think it will take multiple quarters to repair sentiment.” Further, he concludes, “We are not comfortable recommending the stock in the near-term and prefer to “tap-out” ahead of the quarter.”
According to TipRanks, Rob Sanderson has a 46% success rate recommending stocks with an average loss of (5.0)% per recommendation. Out of the 29 analysts who have rated LNKD in the last 3 months, 15 gave a Buy rating while 14 remain on the sidelines. The average price target for the stock is at $170.67, marking a 57% upside from where shares last closed.