(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Nike, Inc. (NKE) stock has plunged by more than 10% from its September highs amid disappointing fiscal first-quarter results and a broader market sell-off. But now technical analysts suggest that the shares may rebound by 10% over the coming weeks. Options traders are betting the stock rises 6% by the middle of November.
But despite the bullish sentiment analysts have been cutting their earnings estimates for the company. The reduced forecast is because of weaker than expected profit margins in the quarter and second quarter guidance that came in lower than expected.
Technical Break Out
The chart shows that the shares of Nike are rising above technical resistance at $75.60 and breaking out. It suggests the stock may increase further to the next level technical resistance at $83.25. Additionally, the relative strength index is also beginning to rise as well which suggests that bullish momentum is coming back into the stock.
Options traders betting the stock will rise too by expiration on November 16. The calls at the $80 strike price have seen an increasing level of open interest. A buyer of those calls would need the stock to rise to $80.50 to earn a profit, an increase of almost 6%.
However, analysts have reduced their earnings growth estimates for the second quarter and are now forecasting earnings to be flat which is down from prior estimates for growth of 15%. Meanwhile, revenue growth estimates have dropped to 7% from 8.5%
Analysts estimates for the full-year have been reduced as well since the middle of September.
While the stock may see a short-term rebound, the company will need to deliver strong second quarter results and improving margins to have a rebound turn into a longer-term increase. Additionally, the company may be facing longer-term headwinds from the trade wars between the U.S. and China. Meanwhile, a strengthening U.S. dollar may have a negative impact on the company's revenue, making its products globally less competitive.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.