With Wall Street all decked out in its summer scandals, squeaky-clean


(NKE) - Get Report

looks ready to stroll higher.

The stock rallied Tuesday after Merrill Lynch dubbed the athletic shoemaker the "un-Worldcom" for its clear earnings visibility and strong cash flow. Further boosting Nike's prospects is the black eye sported by rival



as assault charges loom over its star pitchman, basketball player Allen Iverson.

The developments come at a good time for Nike stock, which once was a Wall Street favorite but has been flat for about five years since its Michael Jordan-fueled growth petered out. This year the stock has easily outperformed the dwindling market averages but has failed to make investors any actual money, dropping 5% over the course of 2002. Nike rose $1.54 to $53.94 Tuesday, while Reebok dropped 14 cents to $25.55.

Coming Clean

In boosting Nike to strong buy, Merrill's Virginia Genereux said the stock is likely to benefit from investors' increasing anxiety about corporate chicanery. The company's strong cash flow has been overlooked but won't be for long, she reasons.

The Nike story does appear to be regaining some momentum. Earlier this year the company

blew by fourth-quarter earnings estimates, helped by strong sales of midpriced footwear. Meanwhile the company's unparalleled global reach is about to pay off, Merrill says.

Genereux estimates that Nike's current fiscal year earnings will hit $2.87, up 17% from last year's $2.46 per share. Her estimate is slightly above the current consensus of $2.83, although she calls her estimate "conservative." In addition, she estimates the company generated $750 million of free cash -- cash flow after accounting for capital expenditures. That's a strong figure for cash-hungry investors.

"There seems to be increasing recognition among investors that international is key here, and growing comfort with the notion that the core U.S. footwear and apparel business may be low-single-digit growers," Genereux wrote.

According to Genereux's estimates, this year international should account for more than 50% of revenue, up from 48% last year. In the future, she expects just 3% annual domestic growth.


All this comes as big competitor Reebok has struggled. Shares are off about 14% over the last week, amid revelations that Philadelphia 76ers star Iverson is facing several felony charges after allegedly threatening two men with a gun. Iverson, who has a lifetime contract to pitch Reebok wares, turned himself in to police Tuesday.

Reebok has stood by Iverson. In a recent statement the company said, "It is Allen's celebrity status, not the facts, that continues to fuel these proceedings. We firmly believe that Allen will be vindicated and Reebok, along with his millions of fans, will still be standing by him when he is." Iverson's lawyers have maintained he is innocent.

Even with Wall Street under a black cloud, Nike's stock could be ready to shine.