Wells Fargo Provides Insights on Nike Inc (NKE) and Mastercard Inc (MA)


The upcoming Summer Olympics and management meetings caused Wells Fargo analysts to provide their two cents on sports apparel giant Nike Inc (NYSE:NKE) and payments company Mastercard Inc (NYSE:MA), respectively. Both remain neutral on the two firms, with one citing historical fluctuations for NKE prior to sporting events, while the other predicts modest growth for MA due to new initiatives.

Nike Inc

Going into the Summer Olympics in Rio, analyst Tom Nikic of Wells Fargo examines how NKE’s stock historically performed prior to past Olympic games and other major sporting events. The analyst notes that while many investors believe NKE shares will perform well prior to the Olympics, the opposite tends to happen. Nikic specifically points to prior Olympic events such as the 2012 London Games and the 2008 Beijing Games, where shares decreased 9-10% following the earnings releases that came before the events. The analyst credits this trend to “unexpectedly high SG&A/demand creation guidance for the Olympics.” Specifically, the demand creation expense grows 25% y/y during competitions and 40% y/y for the Summer Olympics, causing shares to decline upon guidance.

The analyst notes that share price declines for NKE apply to all major sporting events, not just the Olympics. The analyst notes that “for the past 8 major global sporting events…NKE shares either declined on the print or had yet to recoup losses from the prior competition.” On average, the stock has dropped 3-4% after earnings in quarters right before a major sporting event and 11-12% intra-quarter. Additionally, the analyst states that it takes shares 6 months to recover from these losses. While the analyst notes that many of these factors may be already reflected in shares, which are currently trading 20% below their 52-week high, he does not see near term upside due to a high multiple and a possible 1Q17 earnings miss.

The analyst reiterates a Market Perform rating on the company with a valuation range of $58-$62 per share.

Tom Nikic has a 100% success rate recommending stocks with an average return of 6.2% per recommendation. According to TipRanks, out of all the analysts who have rated the company in the past 3 months, 74% gave a Buy rating while 26% remain on the sidelines. The average 12-month price target for the stock is $69.91, marking a 27% upside from current levels.

Mastercard Inc

Wells Fargo analyst Timothy Willi provided his insights on MasterCard following management meetings. The analyst states that the company has a “solid portfolio holding” and cited several key points from the meeting. First, Willi highlights the company’s growth efforts in the U.S., which according to the analyst is a maturing market. Therefore, MA is shifting more of its focus to “underpenetrated verticals” such as recurring bill payment and large ticket transactions, naming tuition payments as an example. Furthermore, the company is exploring its options in the B2B market.

The company is also enhancing its international presence through collaborating with policy influencers, governments, and banks overseas in regards to e-commerce. The analyst believes this is a smart move on behalf of MA. He explains, “We believe this approach is smart as it also helps MA create a constructive dialogue and partnership with policy organizations from the ground up as well as driving development of the marketplace and ultimately payment volume.”

Finally, the analyst addresses capital allocation and deployment, believing is a “key tool for value creation.” Going forward, the analyst will look for increases in targeted M&A’s, buybacks, and dividends, praising the company’s efforts so far. The analyst also predicts possible higher merchant acceptance in the E.U. due to decreased interchange.

The analyst reiterates a Market Perform rating on shares with a valuation range of $100-$110. He states, “Driven by global economic growth and a secular shift to electronic payments, we believe MA can grow net revenue by low double-digits over the next several years.” He continues, “This, coupled with modest margin expansion and aggressive share buyback should result in EPS growth in the mid-to-high-teens. We believe this favorable outlook is reflected in MA’s valuation and therefore rate shares Market Perform.”

Timothy Willi has a 45% success rate recommending stocks with an average return of 4.9% per recommendation. According to TipRanks, out of all the analysts who have rated MasterCard in the last 3 months, 91% gave a Buy rating while 9% remain on the sidelines. The average 12-month price target for the stock is $107.50, marking a 14% upside from current levels.