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Nike Inc (NKE) Could Deliver Mid-Teens EPS Growth Over Long Term: Polen Capital

Florida-based investment management firm Polen Capital is bullish on Nike Inc (NYSE:NKE). In its Q4 letter to investors (you can download a copy here), Polen Capital said that Nike rebounded in the fourth quarter, gaining more than 20% after a tough couple of years. Although things are still looking tough for the sportswear maker in the United States, Nike’s growth in the global markets remains ‘robust’, according to the investment firm. In this article, we’ll take a look at Polen Capital’s comments about Nike and will try to learn what Polen Capital thinks about the maker of athletic footwear, apparel, equipment, accessories, and services.

In its letter, Polen Capital said that Nike Inc (NYSE:NKE) has been facing headwinds in North America as a result of a combination of a rapidly changing retail landscape, a fierce competition from Adidas, and a shift in consumer preferences away from performance to more fashion-forward sneakers. Its growth in the United States has “basically ground to a halt, although growth outside the United States, which is more than half of NIKE’s revenue, has remained robust,” according to the investment firm.

However, Polen Capital believes that Nike presented a new winning strategy at its 2017 investor conference in October to grow over the next years.

At its recent investor conference, Nike Inc (NYSE:NKE) laid out an ambitious agenda to streamline and quicken its product development, customization and time to market over the next few years. At the same time, it will shift away from what it terms “undifferentiated retail” partners and focus more on its own and partners’ online offerings. This will, in time, lead to a business model that allows for mass customization and near-to-demand manufacturing that will leverage NIKE’s competitive advantages in scale and brand strength. We believe it also should lead to accelerating revenue growth and significant margin expansion. It appears the worst of the North America difficulties are now in the past and we expect significant improvement from here. We continue to expect NIKE to deliver high-single-digit revenue growth and mid-teens earnings per share growth over the long term.

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Shares of Nike have surged more than 27% during the last 12 months. The stock started moving up late October when the company hosted its 2017 investor day and provided an overview on how it will accelerate its next phase of long-term, sustainable and profitable growth. It expanded Consumer Direct Offense and announced more investment in its Triple Double Strategy to drive growth through three core areas of the business. Further, the sportswear giant announced its new NikePlus membership program to provide member-only access. Fueled by new consumer-focused strategies, the company expects to drive high-single-digit revenue growth, expand margins and mid-teens earnings per share growth on average over the next five years.

Besides Polen Capital, hedge funds covered by Insider Monkey also see a value in Nike Inc (NYSE:NKE). At the end of the third quarter there were 45 funds in our database holding stakes in the sportswear maker. Recently activist investor Bill Ackman disclosed a passive stake in Nike Inc in an investor presentation. Billionaire Jim Simons, David Blood and Al Gore, and quant fund Two Sigma also held large positions in the stock.

Meanwhile, don’t miss reading why Polen Capital doesn’t love Amazon.

Disclosure: None