Week in Preview: FOMC Meeting, Inflation and Nike Earnings

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The Federal Open Market Committee (FOMC) meets again this week to review economic conditions and set monetary policy. On whether the Fed should end quantitative easing or extend it, Atlanta Fed chairman Dennis Lockhart recently said the Fed should remain flexible given the rising energy prices, which could be a sign of coming inflation. Either at this meeting or the next, the Fed could signal that interest rates will rise as a hedge against inflation.

Inflation will also be the focus when the Department of Labor releases the Producer Price Index (PPI) and Consumer Price Index (CPI) this week. Back in January the core PPI (which excludes energy and food costs) had its biggest jump in two years, and the core CPI had its largest uptick in more than year, the second month in a row in which consumer prices jumped.

Also on the economic calendar this week are:
  • Tuesday: Empire State Manufacturing Survey
  • Wednesday: Housing starts in February
  • Thursday: Conference Board Leading Economic Indicators Index, industrial production data for February, Midwest Manufacturing Index
Nike and Ross Stores Earnings Expectations

Things have gone pretty quiet on the earnings front as the quarter winds down. This week's highlights will be Thursday's quarterly reports from Nike (NKE) and Ross Stores (ROST).

The world's largest footwear and sports apparel maker announced management changes and introduced the newest Air Jordans during its fiscal third quarter. Analysts surveyed by Thomson Reuters forecast earnings for that period to come to $1.11 per share, up from $1.01 in the same quarter of last year. The Beaverton, Ore., shoemaker also is expected to post revenues of $5.2 billion for the three months that ended in February. That's 9.1% more than a year earlier.

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Looking ahead to the full year, the consensus forecast thus far calls for earnings of $4.46 per share (+13.5%) on revenue of $20.7 billion (+8.8%). Nike earnings have not fallen short of consensus expectations in the past five quarters.

Nike has a long-term EPS growth forecast of 10.9%, as well as a forward price-to-earnings ratio (P/E) of 18.2, but that's less than the trailing P/E and the industry average. Its PEG ratio is 1.7, the dividend yield is 1.2% and its return on equity (ROE) is 21.4%. The First Call consensus recommendation has been to buy NKE for more than 90 days. The mean price target is currently $98.45. Shares have been trading mostly between $80 and $90 since October and closed the week above $87.

Analysts anticipate that Ross Stores, one of the nation's largest discount retailers, will report its fourth-quarter earnings grew 15.3% from a year ago to $1.37 per share. Calif.-based Ross Stores saw strong same-store sales and raised its EPS guidance during the three-month period that ended in January, and revenue for the quarter is predicted to total $2.1 billion, an increase of 7.1%.

And analysts expect to see full-year per-share earnings of $4.62 (+23.4%) and $7.9 billion in revenue (+9.3%). Earnings have been in line with consensus estimates in the past five quarters.

The long-term EPS growth forecast is 13.4%. The forward P/E is 14.5. Ross Stores has a PEG ratio of 1.1, a dividend yield of 0.9%, and ROE of 41.5%. Yet, analysts do not on average recommend buying ROST now. The share price is up about 13% year to date, and shares have been trading near the 52-week high of $72.86.

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