Piper Jaffray Earnings Previews: Nike Inc (NKE), Finish Line Line (FINL)

With the ink dry on a record-breaking 2016 NBA finals, Piper Jaffray analyst Erinn Murphy weighs in on athletic retailer giants Nike Inc (NYSE:NKE) and Finish Line Inc (NASDAQ:FINL). Let’s take a closer look on her thoughts and expectations for both companies.

Nike Inc

Prior to the release of Nike’s Q4 earnings report due June 28, Piper Jaffray analyst Erinn Murphy weighs in. The analyst remains bullish on the stock, reiterating an Overweight rating for NKE noting that Nike’s 14% year-to-date pull back is a potentially appealing entry point for investors.

Despite the conceivable attractiveness of the aforementioned pull back, Murphy concedes that “shares are now trading 21.8x FY17 and buyside sentiment remains decidedly negative.” The analyst notes that an array of investor concerns ranging from an apparent slow in the North American market to “signature Basketball softness and domestic ASP’s,” plague investor sentimentality, however she is not too concerned.

Murphy believes that these investor concerns are “over-blown,” noting that “while inventory in the channel domestically had been elevated, we believe it is in better shape currently.” Murphy also notes that her “proprietary Teen Survey suggests that the brand remains strong – particularly in footwear and among females,” a view that she does not believe is reflected in current valuations of the company.

The analyst expects healthy gross margin drivers into FY17. Murphy postulates that “…mgmt.. will bless its initial FY17 guidance of HSD/LDD CC sales growth and low-teen EPS growth.” She further reports that this range could be conservative due to fundamental gross margin drivers. Murphy states that Nike can continue to benefit from product costs as it did in Q3. The analyst sees product cost benefit accelerating in Q4 due to lower commodity costs cycling into current products, and also notes that DTC and pricing should endure a favorable impact on margins.

Murphy’s analysis is mindful of Olympic spending dynamics and notes that, “while we remain comfortable with our $2.46 FY16 EPS estimate, we are reducing our FQ1 EPS from $0.70 to $0.62,” a reduction she attributes to what is generally a 200+ bps Y/Y increase in demand creation in Q1 during Olympic years. Murphy also foresees post-Olympic innovations and expects continual strength in Nike’s DTC channel.

Erin Murphy reiterates an Overweight rating for NKE with a price target of $69, marking a 26% upside from current levels.

According to TipRanks, 72% of analysts maintain a Buy rating for NKE, while 28% of analysts maintain a Hold rating rating for the stock. The average 12-month price target for the stock is $68.97, marking a 28% upside from current levels.

Finish Line Inc

Piper Jaffray analyst Erinn Murphy updated her earnings estimates for Finish Line ahead of its first quarter earnings release on June 24th, based on softened traffic trends in malls from the middle of April until May.

The analyst reduced her estimates for first quarter earnings from 4% to 2% which in turn sent down her estimates for EPS from $0.23 to $0.22. Her revised estimate assumes, “the two-year stack in Q1 is similar to that of Q4.” In addition, Murphy expects management to stick with their estimate of $1.50-$1.56 for its FY17 EPS, but she believes, “they will speak to the second-half weighted nature of their guidance from a comp and gross margin perspective.”

Murphy, in addition to the earnings report, will be listening to the Finish Line earnings call to determine how, with the upcoming Olympics, management feels about their innovative products which “are important given the SGA leverage point remains elevated.” In addition, the company is facing further pressure on its expenses with the passing of the Overtime Rule, a new regulation that dramatically expands overtime pay eligibility for salaried employees. The analyst will also be listening for sneaker trends and how consolidation in Finish Line’s sporting goods segment could impact its business.

Following these revised estimates, Murphy maintains her Neutral rating for Finish Line with a price target of $18.00, marking a potential upside of 2% from current levels.

According to TipRanks, out of the 11 analysts who have rated the company in the past 3 months, 64% gave a Buy rating and 36% gave a Hold rating. The average 12-month price target for the stock is $22.13, marking a 28.36% upside from current levels.

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