We think this is a good time to look at names popular during NFL season. Who will be the winners and who will be the losers? We will focus on 3 names here, namely Under Armour (UA), Nike (NKE), and Domino’s (DPZ).
More than a 100 players in the NFL wear Under Armour cleats and gloves. Nike wasn’t left behind. In March, they announced new uniforms and accessories for all 32 NFL teams. Now, whether you’re a fan of the Super Bowl-winning New York Giants, the New England Patriots, or someone else, you’ll want to enjoy all the action that football has to offer either at a bar gulping your beer or on your couch with your beer and Domino’s pizza. It helps to know that using your Domino’s mobile app, you can order pizza from more than 5000 locations.
Nike: The big risk with this name is it’s exposure to China, which contributed to slower than expected EPS growth in the fourth quarter reported in July. China is the third most important contributor to EPS growth after North America and the emerging markets. Macroeconomic pressures, the competitive landscape and the change in consumer behavior will continue to impact growth and margins going into 2013 and possibly 2014. Nike benefits from demand by big athletes in the NFL but also from general athletic footwear buyers found in college football tournaments. Still, lets not forget that Nike’s higher raw material costs had the stock tumbling in June when the company reported earnings. So although exposure through the NFL could be a benefit, we would continue to track the impact of costs on earnings growth. The stock currently trades at $97.47, which is 19x FY 2013 consensus estimate of $5.13 and the peer average of 15.3x. The 52-week trading range is $80.20-$114.81. We would watch the progress in China carefully while looking for an entry point. Whether you are a sprinter or a long-distance runner, this is a name for you to watch!
Domino’s: On August 14th, 2012, we learned that DPZ’s previously largest shareholder, Peltz’s Trian Fund, now holds zero shares. This is a huge relief for several investors as it ends selling pressure in the name. Another point of interest to potential investors should be that Domino’s is 96% franchised. In essence, a 100bps change in margins contribute only $0.03 to EPS, and it’s supply-chain model is a nice hedge in an environment of food inflation. Another bonus for those tracking the name is that an annual free cash flow of $100 million plus, and a renewed $200 million stock buyback program gives hope for additional buybacks. A significant positive catalyst for the name would be a return of a quarterly stock dividend. Given the recent performance of the company, it would not be a surprise. The stock is currently trading at 12x its TTM EV/EBITDA multiple versus the company’s average of 10x since it’s IPO in 2004. With the NFL season upon us, Domino’s could easily find it’s multi-pizza orders benefiting from all the house party events around football. Watch the catalysts mentioned above for a possible positive catalyst in the stock in the short term. Overall, with the food inflation, this name might be worth the bite.
Under Armour: Under Armour recently announced that it plans to aggressively target women with a new multimedia campaign to be launched this week. New products will be announced for spinning, running and yoga. Additionally, the NFL season should be a booster for the stock. The company had geared up more than 100 players in the NFL with the Under Armour logo. It doesn’t stop here. The Ravens have signed a 10 year agreement with Under Armour to rename the Owings Mills practice facility. In earnings, the company reported better than expected second quarter results and raised guidance. It was a clean quarter with improving margins, better inventory, and strong sales growth. Performance has been great and the stock today is trading at $58.85, near its 52-week peak of $59.19. Some of the recent upside was also a result of short covering. The stock is currently trading 30x its TTM EV/EBITDA multiple versus its 5 year average of 17x. Given the progress the company has made in the recent history, and presuming it deserves some premium to its current valuation, a range of $40-$45 would be eye-catching. At that point, a re-evaluation of an entry point into the stock should be considered.
So here we have 3 stocks that will be involved in some way or another during the NFL season.