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​Time for investors to lace up some Nikes?

For large-cap investors, an important rule is to capture at the most judicious price the stock of a company that dominates its industry. That's because such a company is assumed to possess steady growth potential in sales and earnings -- and in market reach worldwide. These stocks make up core portfolio holdings, and the companies that easily come to mind include Facebook (FB) in social media, Amazon (AMZN) in retail products, Berkshire Hathaway (BRK.A) in conglomerates and Starbucks (SBUX) in coffee.

Now, one stock in this category that may have just become even more attractive in valuation is Nike (NKE), the world's leading designer and marketer of high-quality athletic shoes and apparel. It shares have been on the ropes since late Tuesday March 22, when it posted fiscal third-quarter results that disappointed analysts mainly on management's preliminary future guidance. Even as third-quarter net income jumped 22 percent, to 55 cents a share, well above analysts' forecasts, estimates for the coming fourth quarter and for fiscal 2017 (ending on May 31) were below Wall Street's forecasts.

That caused the stock to drop by about 6 percent, to $62.43 on Wednesday after the mixed third-quarter results were announced. Nike shares ended the holiday-shortened week down an additional 1.2 percent at $61.68, and slipped a further 0.6 percent on Monday, closing at $61.34.

"But don't get caught up in the madness," advised Robert Drbul, equity analyst at investment firm Nomura, in a recent report. Although Nike's revenues increased 8 percent, to $8 billion (in constant currency) during the quarter, the strong U.S. dollar continues to pressure top-line growth, explained Drbul. But more important, Nike continues to show strength in its key markets: North America, up 14 percent; Western Europe up 12 percent; and China up a whopping 27 percent.

"We were also encouraged by strength in the emerging markets," where Nike revenues 29 percent in Central and Eastern Europe, and in Japan sales leaped 27 percent, noted Drbul. So, "we continue to believe the outlook for Nike remains quite healthy," he added. And gross margin in the third quarter was 45 percent of sales, which was better than expected. The analyst's gross margin forecast for fiscal 2016 remains unchanged, said Drbul, up 50 basis points for the year.

Drbul rates Nike as a "buy" with a price target of $80 a share, and "we would use any weakness in the stock to accumulate more." His price objective reflects 37 times his fiscal 2016 earnings estimate of $2.15 a share and 33 times his fiscal 2017 earnings projection of $2.45 a share.

True, some investors worry that with the stock having doubled in three years, it might not have much more room to grow and continue justifying its lofty price, even after its recent pullback. And then there are the coming Olympic Games. Because of the recent terrorist attacks in Brussels and Paris, exacerbated by Brazil's economic troubles, including fears about Zika virus and hazardous water quality issues for athletes competing in Rio de Janeiro, would Nike have to lower its sales and marketing hopes from the Summer Games?

Analysts note that Nike continues to spend in Brazil in preparation for the Olympics, and Drbul has slightly reduced his earnings estimate for fiscal 2017 to $2.45 a share from $2.48, taking into account that aside from the Olympics spending, Nike continues to be affected by the strong dollar. "But we remain encouraged by Nike's vast pipeline of innovation and remain optimistic about the company's future," asserted Drbul.

True, Nike shares are trading at a premium to its industry peers and its own historical average, but Drbul believes the "combination of dominant (and growing) market share, forward sales visibility and upside potential argue for sustainable mid-teens earnings growth over the long term and potential (P/E) multiple expansion."

Equity analyst Tuna Amobi of S&P Marketscope Advisor raised his fiscal earnings estimate for 2016 by 7 cents, to $2.24 a share, and his fiscal 2017 forecast also by 7 cents, to $2.54 a share. "With worldwide futures orders up a healthy 12 percent (up 17 percent minus foreign exchange adjustment), we keep our 12-month target price of $73 on sizable fiscal year 2017 P/E of 28.7 times, versus peers and 10-year average of 25 times, with ample cash of more than $5 billion," said Amobi.

Globally, he sees Nike further leveraging its product innovation to generate consumer demand across various price points and applying "consumer insights from its direct-to-consumer business to deliver the right assortments to its wholesale partners."

Two major reasons that some analysts say almost guarantee the supremacy of Nike in product and sales growth are its strategy for women shoes and apparel, which are now outpacing growth in the men's business (particularly online), and China, where the market is "normalizing" and will be a key growth region.

"We expect women's (product sales) to grow to $11 billion in sales by fiscal 2020, from $5.7 billion at year-end 2015," said Nomura's Drbul. Nike plans to add 1,000 additional points of distribution for women's business over that period, after having added 173 premium distribution spaces in the past year alone. "We believe that an increased campaign around the sneaker culture building up around women should benefit Nike's women's footwear business," the analyst said. Currently, only six footwear styles are bringing in sales of more than $100 million annually, he noted.

And in apparel, the business continues to grow with success in Nike's Legend pants was well as the Nike Pro bras and tights, which have had exceptional sales, according to the analyst. "We believe women's participation in athletic activity, particularly in running, and the intersection of athletic apparel in everyday activity is also on the rise," Drbul pointed out. A sustained interest in healthy living has replaced short-term fitness trends, "a dynamic in large part led by women," he added.

In China, Drbul expects great opportunity for Nike despite macroeconomic concerns. Outside the strong growth in more mature markets, such as North America and Western Europe, China is seen as a great addition to Nike's overall growth. In 2014, sales in China suffered and ended flattish by year-end due mainly to high inventory.

But Nike quickly did a strategy "reset," and China turned the corner for Nike, as evidenced by a positive future order growth since the fourth quarter of 2014. By first-quarter fiscal 2016, revenues grew by 30 percent, with future orders up 22 percent, and in the fiscal second quarter, sales climbed 24 percent with futures up 28 percent. In fiscal 2016, Drbul expects continued Chinese growth, projected at 20 percent, "we believe the China region has now entered a 'new normal' of exceptional brand strength and productivity" for Nike, said Drbul.

Paul Swinand, equity analyst at Morningstar, is also high on Nike in spite of the ruckus over the third-quarter results. "As the Nike brand, its iconic sponsorships and its reputation for innovation and performance are the basis for our wide-moat rating, we remain optimistic for the brand's global growth and ongoing appeal," he emphasized. "We still prefer Nike to industry peers," he added, "both for its high returns on invested capital and for its relative valuation."

Nike's stock is "prestigiously top-ranked for both timeliness and safety," said Craig Sirois, equity analyst at Value Line Investment Survey. He puts his preliminary sales estimate for fiscal 2017 at $35.5 billion, up from his projection of $32.9 billion for fiscal 2016. And he sees earnings of $2.45 a share for fiscal 2017, up from a projected $2.15 in fiscal 2016, "boosted," said Sirois, "by the upcoming Olympic games and share repurchases."

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