Nike's Pace Could Leave Naysayers In The Dust

When Jimmy Connors came out charging in one of his most dazzling performances ever during this year's U. S. Open, the shoes the tennis superstar wore caught Frank Podbelsek's eye. On TV, Connors has been pitching Converse sneakers. But what shoes did the 39-year-old phenomenon choose when it really mattered? Nikes. That was important to Podbelsek, an analyst at Gruntal & Co. in Beverly Hills, who thinks the shorts in Nike shares will take a pounding. He has been pounding the desk for clients to buy Nike, the world's largest maker of athletic shoes.

Nike officials confirmed that Connors told them he'd be wearing their shoes at the Open. Nike wouldn't elaborate on whether Connors will eventually endorse its products, but to Podbelsek, Connors' move confirms his view that Nike is the "dominant choice in the ultrahigh-performance category of athletic shoes." Nike also makes sports apparel and Cole Haan shoes.

The shorts insist that Nike faces big inventory problems and write-downs that will lead to negative earnings surprises. But so far, that isn't panning out. In Podbelsek's view, the recent rise in Nike shares, from 35 in early July to nearly 50 on Sept. 3, is based primarily on reduced fears of an inventory glut. "Nike's recent results are proving that inventory levels aren't excessive," he says.

Many analysts believe that hurried short-covering by bears has contributed to the stock's recent upswing. Short positions in Nike peaked at 2.5 million shares on July 15--nearly triple April's level. But by Aug. 15, they had dwindled to 1.8 million, and some analysts think the number may shrink to about 1 million in September.

UPSIDE SURPRISE? Podbelsek believes the stock will climb to 60 this year, based on his earnings estimates of $4.15 a share for the year ending May 30, 1992, and $4.75 to $5 for 1993, vs. 1991's $3.77. And he figures his estimates are conservative. Judging by the shrinkage in Nike's inventory and its improving sales outlook, "Nike could pull an upside earnings surprise next year," says Podbelsek.

In fiscal 1991, Nike's strongest growth came from international sales, where revenues jumped 80%, from $480 million to $862 million, in part because of booming demand in Europe and Asia. Dean Witter Reynolds analyst Willard Brown expects overseas sales to remain strong. He projects growth of 30% for fiscal 1992 and an additional 20%-to-25% rise in 1993, with sales abroad accounting for 48% of total revenues by 1993, vs. 1990's 33%.

One New York investment pro who has been accumulating Nike shares says he was encouraged when he saw that Nike's recent introductions--the Air Huarache and its extension, the Air Mowabb--created retail excitement in the midst of an otherwise lackluster sales environment.

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