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Why Nike Is Pegged by an Analyst to See Big EPS Growth

By Rhian Hunt – Sep 24, 2020 at 2:18PM

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UBS sees the potential for earnings per share to grow 30% annually for 5 years.

Sports and athletic shoe and apparel giant Nike, Inc. (NKE -2.03%) received a strong vote of confidence today from an analyst at financial services firm UBS. In his research note, as reported by Seeking Alpha, Jay Sole predicts both ongoing sales improvements and vigorous earnings per share (EPS) growth over the next half-decade.

Sole states he believes the market is undervaluing Nike in light of its recent better-than-expected, first-quarter fiscal 2021 results and the information revealed during the follow-up earnings-conference call. Providing detail on UBS's bull case, his note states the "key is Nike's transition to digital selling is happening much faster than we anticipated" and the e-commerce "transformation is just getting started and will drive better-than-expected sales growth and margin expansion well into the out-years."

A pair of blue and white basketball shoes on a herringbone wood floor.

Image source: Getty Images.

Nike's digital sales exploded 82% year over year during the most recently reported quarter, providing approximately $900 million worth of incremental revenue, while its strong, technology-based membership model has also likely boosted its financial performance. During the Sept. 22 earnings-conference call, CEO John Donahoe remarked the "accelerated consumer shift toward digital is here to stay" and observed the "NIKE Digital business is already meeting our mix goal of 30%, nearly three years ahead of schedule and we will continue to grow from here."

Seeing these trends as long-term winners, UBS predicts that for the next five years, Nike will generate an EPS compound annual growth rate (CAGR) of 30%. It expects EPS to soar to $6 in Nike's fiscal year 2025. Alongside these forecasts, it raised its price target to $152 per share, roughly a 20% upside from the stock's current value.

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.

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