Friday, September 15, 2006

Calls of Note Part 4

- JP Morgan notes that while Nike's (NYSE:NKE) share price has come off recent lows, driven by a lift in the overall market and declining oil prices, they are cautious heading into the company's 1Q07 earnings announcement on September 21st. Overall athletic footwear sales in the U.S. appear to be slowing and recent retail commentary continues to suggest a slowdown in marquee product, particularly in the basketball category (units down double-digits YTD according to Sportscan).

In terms of current footwear trends, the firm believe that fusion/skate styles are driving back-to-school sales and according to channel checks, NKE's move into this highly competitive category has been met with mixed reviews. In firm's view, the target consumer does not specifically view NKE as a fashion brand and has already established a relationship with historically lifestyle brands (i.e. Puma, Skechers, Vans).

Finally, they note that the company recently canceled its analyst day scheduled for mid-October and rescheduled for early February 2007, leaving the stock without a potential catalyst beyond next week's earnings announcement. At 14.8 times FY07 estimate, NKE is trading below its five year historical average of roughly 18 times. While valuation is compelling, the firm remains on the sidelines for now as Nike operates on the wrong side of the current footwear trend with no compelling near term catalyst.

Notablecalls: I suggested NKE was a swing-short about a week ago. The stock blew through my stop 2 days later. I still believe it makes little sense being long this one heading into earnings. I trust that will create at least some intraday shorting opportunities in the coming days.

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