Nike Stock Earnings Preview: NKE rises 1% in premarket ahead of FQ4 earnings

Nike stock has advanced 1% in Monday's premarket in a sign that investors are expecting another earnings beat for the fiscal fourth quarter, which ended in May. Earnings will be released after the market closes on Monday. Wall Street analysts have a consensus forecast of $0.82 GAAP earnings per share (EPS) on revenue of $12.1 billion. While Nike has not missed a consensus EPS forecast since the fiscal Q4 of 2020 two years ago, many analysts are quite vocal about predicting an earnings miss due to the lockdowns in China. 

Also read: Walmart Deep Dive Analysis: Hold WMT to play defense vs upcoming US recession

Nike Stock Earnings Prevew: China worries

More than a third of Nike's growth since 2016 has come from the Greater China region, according to a report by Morgan Stanley. The covid lockdowns in Shanghai and other major population hubs in March and April greatly affected the sales of leading retailers there, and news accounts suggest that many retailers are still working through their backlog of inventory. This slowdown in sales must have affected Nike, but no one knows by how much.

Morgan Stanley analyst Alex Straton wrote to clients, "EPS might get worse before it gets better." Barclays was also pessimistic about China, as was Bank of America. Overall, 16 analysts have reduced their expectations for FQ4, while only two have raised their forecasts. Baird, by contrast, was more upbeat. Its note to clients said that one of Nike's main retailers saw May sales only reduce by 19% YoY, and that was a sign that things were bouncing back quickly once lockdowns ended. 

The same quarter one year ago had Nike reporting $0.93 a share on sales of $12.34 billion, so analyst consensus already has a -12% reduction in EPS and -2% on revenue built-in.

Seaport Research Partners was probably the most bearish, writing last Wednesday that “a disconnect between sentiment and reality" was causing NKE stock to be overvalued compared with its other retail brand peers. “Sentiment isn’t exactly great, seeing how NKE’s shares are down 39% from their 52-week high, but that’s actually better than the company’s average peer, which is down 46% on average.” The report also slighted Nike stock for trading about twice its peer group based on price/earnings. Nike trades at a forward P/E of about 31.

Nike Stock Forecast: Down 31% YTD

It seems like a bad idea to buy NKE stock before earnings. Yes, an earnings beat could lead to a post-market spike, but we think a slump is more likely. Nike is a beloved stock, and it is quite rare to see this many analysts talking about near-term warning signs. NKE stock is down 31% for a reason – a recession would set the company's global sales back heavily.

Support is at $105 and $103. That is the best entry point. With the 9-day crossing below the 20-day, NKE stock does not look hopeful for a long. A cross above $115 would change sentiment though.

NKE stock daily chart

---