Institutions And Buybacks Support Nike Uptrend 

Insiders Sell Nike In 2nd Half Of 2021

Insiders have been selling their shares of Nike (NYSE: NKE) this year but it’s nothing to be worried about. The selling is worth about 0.1% of the shares outstanding and nothing compared to what the institutions have been doing. Institutional buying has been very strong this year and, despite rotation within the market, pushing the stock higher. Institutions have purchased $7.98 billion worth of Nike shares, net of selling, which amounts to about 3.15% of the market cap. Total institutional ownership is now up to 64.4% and it will go higher if the FQ2 results are any indication of the company’s health. 

As for the insiders, insider selling is light but picked up notably in the 2nd half of the year. If not for the institutional activity we might find that alarming but there is also something else to consider. The selling is among a broad array of execs, directors, and large shareholders and coincides with record-high share prices. Shares of Nike are up more than double from the post-pandemic low and more than 1000% over the past 10 years so if there was ever a time to take some profits it is now. 

Nike Has Good FQ2, Outlook Cloudy 

Nike had a good FQ2 with revenue up 1.1% YOY to $11.36 billion. This is 100 basis points better than expected and supported by strength in North America. On a segment basis, Nike brand sales are flat on a YOY basis as strength in NA was offset by weakness in Asia and Latin America. Converse sales, however, are up 16% with noteworthy growth in the overseas markets. Sales of Nike in China and Latin America were impacted by low inventory levels following the fall shut-downs. Nike Direct and Digital sales grew 9% and 12% with a 40% increase in the NA market. Inventory levels here were less affected due to higher levels of in-transit inventory at the beginning of the quarter. 

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Moving down, Nike was able to widen the gross margin by 280 basis points to 45.9%. This is due to increased full-priced selling, fewer markdowns, and sales leverage in the direct and digital channels. SG&A increased as a percentage of revenue but less than expected. On the bottom line, the $0.83 in GAAP earnings is up $0.05 or 6.4% over last year and beat the consensus estimate by $0.21. 

Looking forward, Nike reiterated its revenue guidance for the FY and Q3 period. Along with that, it is expecting margins to widen again and drive earnings above the current consensus. The risk, in our eyes, is in inventory because the shut-downs in Vietnam and China have caused a hiccup in supply that is yet to be felt. The company says inventories are up 7% from last year which is probably enough assuming the supply chain is able to catch up. 

The Analysts Are Still Bullish On Nike 

The analysts are still bullish on Nike but have begun lowering their price targets. At least two sell-side analysts have come out to lower their price targets while maintaining a Strong Buy rating. The current consensus is $179 or about 6.75% above the current price action and it has been edging higher over the past 30 and 90-day periods. 

The $179 consensus price target is coincident with the current all-time high. This level may be tested in the very near term but there is a risk of resistance at the short-term EMA. If the EMA can be overcome we see price action moving up to $179 by early January at the latest. The question then will be if the stock can make a new all-time high or if it will remain range-bound until the next earnings report comes out. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
NIKE (NKE)	$65.68	+0.0%	2.50%	33.68	Moderate Buy	$82.24