The market's been rallying this year, but two consumer-brand behemoths -- Disney (NYSE:DIS) and Nike (NYSE:NKE) -- are trading closer to their 52-week lows than their highs. Investors looking for an opportunistic time to buy one or both of these icons may be sniffing around, but figuring out the better buy isn't easy.
Pitting Disney against Nike may not seem fair. The two companies are friends. Nike CEO Mark Parker was added to Disney's board of directors last year. However, both companies are currently out of favor. Disney's been sliding on fears that cord-cutting millennials are walking away from its media-networks properties. Nike's stock has come under fire after two athletic-footwear retailers posted abysmal quarterly results earlier this month.
Let's size up the holes that both companies find themselves in at the moment and see which household name will bounce back first.
Nike closed out its fiscal 2017 year in reasonably healthy fashion this summer. Revenue rose 5% in its fiscal fourth quarter, or 7% on a currency-neutral basis. Earnings grew even faster, but that was partly the handiwork of a lower tax rate. Gross margin inched lower, and that's a problem in light of the retail climate these days. Foot Locker (NYSE:FL) and The Finish Line (NASDAQ:FINL) have taken a beating after posting rough results.
Foot Locker blamed weak demand for top styles last week, something that naturally doesn't bode well for Nike. Shares of The Finish Line have plummeted 23% so far this week, after the company reported a similarly brutal financial update on Monday. The Finish Line is hosing down its guidance and talking up the promotional nature of the athletic-footwear market, another red flag for Nike. Analysts now see flat top-line growth at Nike for the current quarter with a sharp decline in profitability.
Disney is already posting flattish results. Revenue for its fiscal third quarter was in line with what it posted a year earlier, and earnings took a 2% hit. There's weakness at Disney's largest segment, media networks, but also its studio division is bumping up against some rough year-over-year comparisons. Even Disney's historically resilient theme-parks business is struggling with attendance growth at its domestic attractions.
Wall Street pros have been scaling back their forward earnings projections for Nike and Disney, but the sell-offs have kept earnings multiples in check. Disney and Nike are trading at 16 and 19 times fiscal 2018's profit targets, respectively. Analysts see comparable top-line growth of 6% at Disney and 5% Nike next year. Nike's yield of 1.4% is double that of Disney's 0.7% payout.
Other trends pose challenges for both companies. Nike is seeing a revival at a longtime rival. Shopping malls and multiplexes are sliding in popularity, hurting Disney's namesake retail concept and its theatrical releases. Neither company is at its best right now, but with its lower earnings multiple and a clearer path to growth -- given the arrival of the next Star Wars movie this holiday season and a massive upgrade at Disneyland and Disney World -- Disney has the edge.