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Nike Plunges: What Wall Street Is Saying

Stocks in this article: NKE

Updated from 8:32 a.m. to include additional information from Deutsche Bank analyst.

NEW YORK (TheStreet) -- Nike (NKE) shares were falling sharply in trading on Friday, after the athletic apparel company posted third-quarter results that were better than anticipated but guidance concerns spooked investors.

For the quarter ended Feb. 28, Nike earned 76 cents a share on revenue of $6.97 billion, handily beating analysts' estimates of 72 cents a share on $6.69 billion in revenue. The company noted futures orders, which are orders for Nike-branded merchandise for March through July, rose 14% globally, aided by a boost in Western Europe, where it saw a 30% rise.

"Our strong Q3 results demonstrate our relentless focus on delivering innovations that resonate with consumers," said Mark Parker, president and CEO of Nike, in a press release.  "Despite macroeconomic challenges, NIKE delivers consistent results because we focus on the biggest opportunities for growth while we manage risk across our diverse global portfolio. This is how we continue to drive long-term value for our shareholders."

Shares fell 3.8% to $76.31 in early market trading Friday, after closing Thursday at $79.27.

Despite the strong third-quarter results and futures orders, Nike warned that significant currency fluctuations would impact next year's results. On a conference call, Chief Financial Officer Donald Blair said the devaluation of currencies around the world compared to the U.S. dollar would be "a significant drag on next year's reported revenue, gross margin and profit growth."

The company also noted that China, from where it gets a significant portion of its revenue, would be weak this quarter, either unchanged or slightly down.

Despite the concerns about China, it appears other events, including the World Cup, which is being held in June and July in Brazil, have helped Nike's future orders. Nike is spending a quite a bit of money on the World Cup, noting the company's demand creation expense was $733 million during the quarter, up 18%, "driven by marketing support for key product launches, the upcoming World Cup and investments in retail product presentation for wholesale accounts."

Following the results and the conference call, analysts were by and large positive on the company, with several raising price targets going into the World Cup. Here's what a few of them had to say:

Credit Suisse analyst Christina Buss (Neutral, $80 PT)

"Nike reported impressive revenue and earnings upside this quarter. Quality of earnings growth was high, with revenue exceeding expectations across channels and geographies. We are increasingly compelled by demand momentum as a result. However, top-line strength is unlikely flow through to earnings power near-term given accelerated investment in
support of major sporting events (World Cup, Olympics). When combined with what we view as aggressive valuation, we see upside to shares as limited. With roll-forward to CY15 valuation, we raise our target price to $80 from $72."

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