Nike's North American Inventory Number Is Something Many Are Missing: And It's Good

Nike Inc (NYSE: NKE) is up roughly 18 percent over the past 12 months, a little more than 1 percent over the last three months, and analysts like the name.

Goldman Sachs, Barclays and Credit Suisse all maintained their ratings on the stock following its recent earnings results, with Buy, Overweight and Outperform ratings, respectively.

However, one Wall Street firm says there is one key figure in this positive story that hasn't been given enough attention.

"Dust off your Nike models as the 10Q is out," Macquarie Research analyst Laurent Vasilescu said. "Good news! The number is $2.308 billion. What's that? That's the North American inventory number."

Inventory Figures

Vasilescu continued, "Management spoke on the 3Q16 call that they made progress regarding North American inventories and they delivered."

"In our January note we outlined that 2Q16 North America inventories were $2.389 billion. We ran through a modeling exercise based on assumed days in inventory for North America and estimated that there was approximately $400 million of excess inventories in North America," the analyst said. "Today we walk through the same exercise to assess the composition of the 3Q16 North America inventory of $2.308 billion. We estimate that there is approximately $250 million in excess inventories in North America."

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Vasilescu commented, "Management outlined that they would ‘ensure a healthy full market as we end fiscal year 2016.' (emphasis omitted) We estimate […] that this would entail approximately 60bps of gross margin pressure in 4Q16."

Rating, Expectations And Justification

Macquarie currently rates Nike at Outperform and has a 12-month price target of $77.50.

The firm is in the process of updating the earnings/target price model "with cash flow and balance sheet after the release of the 10Q." "No change in estimates for FY16 or FY17," Vasilescu mentioned.

The analyst concluded, "We think the North America inventory overhang has put pause on the stock. Now that we are almost there – we are reiterating our Outperform rating. We can now shift focus back to what Nike does best – lead through innovation (emphasis omitted)."

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