1) Struggling apparel giant Nike (NKE), which I've written about many times (archive here), reported fiscal fourth-quarter earnings after the close yesterday...
The results were roughly in line with very low expectations. Revenue was $11 billion, down 4% on a currency-neutral basis. And adjusted earnings per share were $0.20, above last year's $0.14 and estimates of $0.13.
On the conference call, CEO Elliott Hill said Nike is seeing pressure from lower traffic and discretionary spending across geographies. He added that the company is working to right-size its distribution network to match demand and lower supply-chain costs.
Shares were up a bit this morning, just off the 12-year low they hit last week:
Nike looks tempting at these levels. But I'm still on the fence about the stock because free cash flow ("FCF") has been declining sharply, as I showed in my April 1 e-mail.
The company doesn't release a cash-flow statement as part of its earnings report, so we won't be able to see this critical metric until it files its 10-K in a couple of weeks.
For further insights, I turned to my friend Lloyd Khaner of Khaner Capital, who specializes in turnarounds. Longtime readers may recall that I've quoted him many times (archive here), most notably on Starbucks (SBUX).
When I asked him whether it was time to buy Nike, he replied:
I still think it's too soon. I've been tracking it and following it, but it's a heavy lift. Ultimately they are likely to be successful, but it's a very competitive industry with a lot of new aggressive, cutting-edge players, and they have not kept up in all areas.
But Nike is still a great brand with great products. It's just a really big company that had a great period during COVID and they're still working off those accelerated sales.
That said, it's in my sweet spot of turnarounds as far as a great brand that has hit a bump.
I don't have a strong opinion on Elliott Hill one way or the other, but he's been there a long time so he should know what needs to be done.
Thank you, Lloyd! I think he's right...
On June 15, I added Nike to my "Discarded Dozen" list of stocks that I believe, as a group, will far outperform SpaceX (SPCX) over the next year.
Note that I'm not recommending all 12 of these stocks. Only ServiceNow (NOW) and Global Payments (GPN) are open recommendations in our flagship newsletter, Stansberry's Investment Advisory.
Subscribers have access to the full write-ups (here and here) and specific buy-up-to advice for these stocks, as well as our entire portfolio of recommendations. If you're not already a subscriber, click here to become one.
2) Last week, I took a "quick glance" at 22 stocks and asked my readers which ones they were most interested in having me take a closer look at.
Medical-device maker Boston Scientific (BSX) was among the ones with the most votes. So today, let's take a look at its historical financials and valuation...
The stock has taken a beating. After rising 20 times from 2012 through last year, it's down 60% in the past 10 months and is at a three-and-a-half-year low.
In fact, it's down to its 2004 peak, making it essentially flat for 22 years:
But this is an excellent business with high, stable gross and operating margins:
Other than a hiccup in 2020, revenue and operating income have risen steadily since 2013 and are currently at all-time highs:
After stagnating for more than 15 years, FCF has soared since 2022:
The company doesn't currently pay a dividend and hasn't repurchased shares since 2020. However, it announced a $5 billion share-repurchase program earlier this year and entered into a $2 billion accelerated-share-repurchase agreement.
Historically, Boston Scientific has allocated almost all of its FCF toward making lots of small – and a few large – acquisitions:
The balance sheet is strong, with net debt remaining roughly steady over the past eight years:
In summary, Boston Scientific's financials are very strong, with high margins and excellent growth in revenue, profits, and FCF in recent years.
Turning to valuation... At $43.23 this morning, the stock currently trades at 12.9 times this year's consensus analysts' estimates of $3.36 per share. That's barely half the market multiple for a well-above-average business.
As you can see in this chart, the stock is currently trading near its lowest forward price-to-earnings (P/E) multiple in the past 14 years:
Overall, the combination of strong historical financials and a depressed valuation makes this a very interesting stock...
I'll take a closer look at Boston Scientific tomorrow. Stay tuned!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.