Nike is set to report earnings Tuesday afternoon, a crucial read on the consumer in the face of the coronavirus pandemic.
The sports apparel company is expected to report a 12% decline in earnings in its third quarter for the three months ended February, according to FactSet, even sales are anticipated to have risen more than 2%. Investors will also be on watch for guidance given store closures in countries including the U.S., Canada and Australia this month.
Nike shares have fallen 33% in the past month, on pace with declines in the Dow Jones Industrial Average, as the coronavirus outbreak worsened in the United States.
Mark Newton, founder and president of Newton Advisors, expects Nike stock to eventually rebound.
“It’s been a very tentative bounce off the lows in the last couple days,” Newton said on CNBC’s “Trading Nation” on Friday. “It is going to take some time to bottom out. I think in the next one to two weeks this will represent better value to buy dips than it is to try to chase this move to $70.”
Nike briefly climbed above $74 a share on Friday after an Bank of America upgrade to buy from neutral. The firm cited a “current global athletic momentum,” which analysts believe favors Nike. By the end of the session, shares had fallen back below $70 to trade at $67.45 a share.
“In the bigger picture I do think the stock is very close to an intermediate-term low,” said Newton. “Going back to 2009, you can see that there’s a very longer-term uptrend that hits right around the low $60s to high $50s in the stock — one from 2012 and one from 2009 — so I like buying the stock into weakness over the next couple of weeks and expect that the stock can begin a more meaningful bounce that could take it back to the low to mid $80s.”
Nike traded above $80 earlier in the month. It hit its record high above $105 in January.
“For now I think for traders, it’s really proper to let this digest a bit. It’s had a very swift decline. Momentum is very strong to the downside and it has gotten oversold, but it is going to take some time to settle down,” said Newton.
A rotation out of consumer discretionary stocks such as Nike and into consumer staples could make sense with the severity and economic impact of the outbreak still uncertain, Federated Hermes portfolio manager Steve Chiavarone said.
“You’re trying to put the entire U.S. economy in kind of a coma here — a suspended state of animation in order to help kill the virus. And so in that light with all these stores shut down for the time being, we think staples are obviously going to be a little bit more safe here — particularly not only because the stores [are] shut down but [also given] lower wages and a likely spike in unemployment in the short run,” he said during the same segment.
However, there is a silver lining for stocks such as Nike, adds Chiavarone.
“That said, we do prefer companies with strong balance sheets of which Nike is one, and we expect that once the pandemic does eventually pass, markets bottom, consumer discretionary is going to be one of the sectors that will see the sharpest rebound because I think there is going to be an element of pent-up demand,” he said.