The wide-moat company is a way to play emerging-market growth around the globe.
By R.J. Hottovy, CFA | 12-29-16 | 12:00 PM | Email Article

 Nike is the largest, most dominant player in athletic footwear, apparel, and equipment--a consumer category that it has helped define and revolutionize over the past four-plus decades. Although footwear and apparel manufacturing and retail tend to be competitive businesses, we believe Nike's size, brand image, key sponsorships, and manufacturing competitive advantages will enable it to maintain its market leadership. With high returns on capital that approach those of top luxury brands, we assign Nike a wide moat rating.

R.J. Hottovy, CFA, is a consumer strategist for Morningstar.

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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R.J. Hottovy, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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