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TheStreet Open House

How Will Nike (NKE) Stock React to $300 Million Deal With NBA Star Kevin Durant?

NEW YORK (TheStreet) -- Nike Inc. (NKE) just simply couldn't let Kevin Durant walk away and with the basketball superstar on the verge of a move to Under Armour (UA) , sources told ESPN on Sunday that Nike exercised its right to match any rival shoe company's offer to the Oklahoma City Thunder star.

A source with knowledge of the deal later told ESPN that Durant has indeed signed with the Oregon-based company.

Nike countered Under Armour's offer of between $265 million and $285 million and believes it will keep Kevin Durant for the next 10 years, sources told ESPN.

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Nike, whose seven-year deal that guaranteed Durant $60 million is expiring, made an initial offer of about $20 million a year that was far from what Durant was looking for. Under Armour's huge play for Durant had many believing that Nike would even let him go at that price, ESPN said.

The overall value of Durant's deal with Nike could hit $300 million or more if his business continues to rise. That number is flexible as he will get a royalty on all sales in his line.

Shares of Nike are slightly lower in pre-market trade

TheStreet Ratings team rates NIKE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate NIKE INC (NKE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NKE's revenue growth has slightly outpaced the industry average of 10.9%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • NKE's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, NKE has a quick ratio of 1.71, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, NIKE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • 47.47% is the gross profit margin for NIKE INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.40% is above that of the industry average.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • You can view the full analysis from the report here: NKE Ratings Report
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