AP News

Ahead of the Bell: Nike

NEW YORK (AP) — An analyst said Friday that Nike is on track to grow because of its strong product pipeline and its opportunities to expand overseas.

Late Thursday, Nike Inc. reported that its third-quarter net income rose 55 percent as the athletic gear maker's resurgence in North America and easing material costs helped offset continued weakness in China. Its quarterly results beat analysts' expectations.

Its shares climbed $4.40, or 8.2 percent, to $58 in premarket trading.

Eric Tracy of Janney Capital Markets said in a client note that the company's investments in innovating its products has helped give a boost to its clothing sales and support demand for basketball-related items. Still, the analyst said it will be as important as ever for Nike to refill its product pipeline, as it is starting to lap price hikes, special events like the Euro Cup and Olympics and its jersey license with the NFL.

Tracy says there are growth opportunities for Nike in emerging markets and China.

Like most global companies, Nike Inc. has been dealing with Europe's fluctuating economy and a slowdown in growth in China. Nike has been working to reduce its inventory in China and reworking its offerings there to adapt to the changing tastes of Chinese consumers. It also has been focusing on growth in North America, selling off less profitable brands like Umbro to focus on core brands like Nike.

While Tracy concedes that conditions are still weak in China, he believes it may have bottomed out now.

Tracy reaffirmed Nike's "Neutral" rating and increased its price target to $57 from $55.

Citi Investment Research's Kate McShane said that even though Nike is still working through inventories in China, the company is showing earlier signs of improvement in the country than she had anticipated a month ago. The analyst credited this to management's strong execution and diversified strategy.

McShane said that emerging markets and North America also continue to surpass her expectations, posting double-digit growth in the third quarter.

The analyst maintained a "Buy" rating and raised the company's price target to $65 from $62.

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