Morningstar

Nike Is An Underappreciated Global Growth Story

The wide-moat company is a way to play emerging-market growth around the globe.

Securities In This Article
Nike Inc Class B
(NKE)

Product innovation, unique marketing, and balanced distribution strategies remain key to Nike's success. Constant innovations in shoe design and production technologies should drive higher long-term margins and also enable great customization. Although the firm develops products across a wide range of price points, its competency in higher-end performance footwear and apparel is unmatched. The firm's tremendous marketing resources, coupled with endorsements from widely recognized athletes, add long-term credibility to Nike's many innovations. We believe this is a key reason that new product launches in running shoes, marquee basketball products, and performance apparel continue to outperform the market. In addition, we see long-term growth opportunities in global soccer, where Nike has been steadily gaining share and where developing markets will continue to increase average price and performance product penetration. Nike's emphasis on technical products increases profitability and minimizes product overlap with other footwear and apparel manufacturers, resulting in industry-leading margins.

International expansion will be the firm's primary long-run growth engine, but North America continues to post impressive revenue gains. We see considerable opportunities for long-run expansion in China, specifically, where the brand is already a leader with revenue of more than $3.7 billion in fiscal 2016. We believe Nike is a way to play emerging-market growth around the globe, as other middle-class consumers develop consumption habits around increasing participation in sports and using the international sports brands that star players display.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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