NKE's China Comeback: Potential Upside Amid Stronger Consumer Demand

Some of the U.S.-listed stocks, including NIKE, Inc. (NKE), stand to benefit from the sizable monetary stimulus that the People’s Bank of China has unleashed recently. The Chinese economy has witnessed slowing growth lately, prompting PBOC to implement new stimulus measures.

New Stimulus Measures to Boost Market Confidence

Beginning February 5, the People’s Bank of China will allow banks to hold smaller cash reserves, said central bank governor Pan Gongsheng at a press conference. Also, reserve ratio requirements (RRR) for banks will be slashed by 50 basis points. That will release 1 trillion yuan ($139.80 billion) in long-term capital.

In addition, the PBOC said that there is room for further easing of the monetary policy. Lowering the reserve requirements that banks must maintain will increase the capacity for lenders to extend loans and boost spending in the broader economy.

Pan told reporters the central bank and the National Financial Regulatory Administration would soon publish measures to support loans for high-quality real-estate developers. Real estate troubles are one of the various factors that have weighed heavily on Chinese investor sentiment.

“It is a significant step from the regulators to enhance credit support for developers,” said Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank. “For developer financing to fundamentally and sustainably improve, property sales need to stop falling and start to recover, which could require more policy efforts to stabilize the property market.”

To sum up, China’s economy could experience a boost from these latest PBOC announcements.

Evercore strategists screened for shares of U.S.-listed companies that have recently seen at least 10% of their revenues from China. Most are consumer companies that could witness a boost to sales in China since consumers will likely spend more than previously anticipated. Evercore’s list includes Nike, Las Vegas Sands, Aptiv, State Street, and more.

Talking about Nike, the sports apparel giant saw nearly 13% of its total revenue from China over the past year, as per FactSet. Now, a stronger-than-expected consumer in China because of massive monetary stimulus could unlock higher profit margins, more share buybacks, more earnings growth, and stock gains in the near future.

Shares of NKE have surged more than 2.4% over the past five days.

Let’s take a close look at the NKE’s fundamentals to analyze how the stock will perform in the near term:

Mixed Last Reported Financials

For the fiscal 2024 second quarter that ended November 30, 2023, NKE reported revenue of $13.39 billion, missing analysts’ estimates of $13.43 billion. This compared to the revenue of $13.32 billion in the same quarter of 2022.

Revenues for the NIKE Brand came in at $12.90 billion, up 1% year-over-year, but revenues for Converse were $519 million, a decline of 11% compared to the prior year’s period. NKE’s gross profit increased 4.6% year-over-year to $5.97 billion. Its income before income taxes rose 16.5% from the previous year’s quarter to $1.92 billion.

The sports apparel and sneaker giant’s net income grew 18.6% year-over-year to $1.58 billion. It posted earnings per common share of $1.03, compared to the consensus estimate of $0.85, and up 21.2% year-over-year.

In addition, NKE’s cash and cash equivalents stood at $7.92 billion as of November 30, 2023, compared to $6.49 billion as of November 30, 2022. The company’s current liabilities reduced to $9 billion versus $10.20 billion as of November 30, 2022.

However, Inventories for NKE were $8 billion as of November 30, 2023, down 14% compared to the previous year, reflecting a decrease in units.

Attractive Shareholder Returns

Nike continues to have a solid track record of investing to drive growth and consistently increasing returns to shareholders, including 22 consecutive years of raising dividend payouts.

On November 15, 2023, NKE’s Board of Directors approved a quarterly cash dividend of $0.370 per share on the company’s outstanding Class A and Class B common stock. This quarterly cash dividend represents an increase of 9% compared to the previous quarterly dividend rate of $0.340 per share. The dividend was paid on January 2, 2024, to shareholders of record on December 4, 2023.

“This dividend increase reflects our continued confidence in our strategies to generate sustainable, profitable growth, while investing for the future,” said John Donahoe, President & CEO of NKE.

The company pays an annual dividend of $1.48, translating to a yield of 1.44% at the current share price. Its four-year average dividend yield is 0.97%. Moreover, NKE’s dividend payouts have increased at a CAGR of 11.2% over the past three years. Nike has raised its dividends for 11 consecutive years.

During the second quarter of fiscal 2024, NKE returned nearly $1.70 billion to shareholders, including dividends of $523 million and share repurchases of about $1.20 billion, reflecting 11.9 million shares retired as part of the company’s four-year, $18 billion program approved by the Board of Directors in June 2022.

As of November 30, 2023, the company has repurchased a total of 65.9 million shares under the program for approximately $7.10 billion.

Lowered Revenue Outlook and Plans to Cut Costs

In December 2023, the management lowered its fiscal 2024 revenue guidance, partly due to weakening consumer demand in China. Nike now expects full-year revenue to grow nearly 1%, compared to the prior outlook of up mid-single digits.

For the current quarter, which includes the second half of the holiday shopping season, the apparel retailer’s revenue is expected to be slightly negative as it laps tough previous year comparisons, and revenue is estimated to be up low single digits in the fourth quarter of 2024.

“Last quarter as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” said Chief Financial Officer Matthew Friend on a call with analysts.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA. Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago,” he added.

Nike continues to expect gross margins to grow between 1.4 and 1.6 percentage points. Also, the company is identifying opportunities to deliver up to $2 billion in cumulative cost savings over the next three years. Areas of potential savings include simplifying its product assortment, streamlining its overall organization, automation and use of technology, and leveraging its scale to boost greater efficiency.

NKE plans to reinvest the savings it gets from these strategic initiatives into fueling future growth, accelerating innovation, and driving profitability in the long term.

“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,” Friend said in a press release.

The plan will cost the sports apparel company between $400 million and $450 million in pre-tax restructuring charges that will essentially be reorganized in the current quarter. Nike stated these costs are primarily associated with employee severance costs.

However, more robust consumer demand in China because of new stimulus measures could unlock higher revenue than currently forecasted by Nike.

Mixed Analyst Estimates

Analysts expect NKE’s revenue for the third quarter (ending February 2024) to decrease 0.8% year-over-year to $12.30 billion. The consensus EPS estimate of $0.76 for the ongoing quarter indicates a 3.9% year-over-year decline.

For the fiscal year ending May 2024, Street expects Nike’s revenue and EPS to grow 1.2% and 11.6% year-over-year to $51.82 billion and $3.60, respectively. Furthermore, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 6.6% and 17.6% from the previous year to $55.22 billion and $4.24, respectively.

Solid Profitability

NKE’s trailing-12-month gross profit margin of 43.96% is 24.6% higher than the 35.28% industry average. Moreover, the stock’s trailing-12-month EBIT margin and net income margin of 11.76% and 10.28% are considerably higher than the industry averages of 7.63% and 4.56%, respectively.

Further, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 36.03%, 14% and 14.24% favorably compared to the respective industry averages of 11.61%, 6.09%, and 4.01%. Also, its trailing-12-month levered FCF margin of 10.91% is 100.2% higher than the industry average of 5.45%.

Elevated Valuation

In terms of forward non-GAAP P/E, NKE is currently trading at 28.52x, 79.9% higher than the industry average of 15.85x. The stock’s forward EV/Sales of 3.05x is 147.7% higher than the industry average of 1.23x. Likewise, its forward EV/EBITDA of 21.96x is 119.8% higher than the industry average of 9.99x.

Additionally, the stock’s forward Price/Sales and Price/Book multiples of 3 and 11.93 are significantly higher than the respective industry averages of 0.92 and 2.52. Also, its forward Price/Cash Flow of 23.65x is 133% higher than the industry average of 10.15x.

Bottom Line

In the last reported quarter, NKE’s EPS beat analysts’ expectations, indicating the company’s cost-saving initiatives were underway. However, the sports apparel and footwear retailer’s revenue fell short of consensus estimates for the second quarter in a row.

Due to several macro headwinds, particularly in China and EMEA, management lowered its revenue outlook for the fiscal year 2024. Also, the company unveiled plans to cut costs by about $2 billion over the next three years.

For Nike, as a consumer company with significant revenue from China, stronger-than-expected consumer demand because of the new stimulus package could result in higher sales than it currently forecasted. Further, better revenue growth, especially in Greater China, could unlock better profit margins, more share repurchases, higher earnings growth, and stock gains.

Amid a series of government announcements indicating forthcoming support for China’s economic growth and capital markets, such efforts could help stabilize the stock market and stop it from capitulating and falling further, said Winnie Wu, Bank of America’s chief China equity strategist.

However, she pointed out a fundamental turnaround in the economy is needed for investors to return to Chinese stocks, which might take time.

Although Nike holds tremendous growth potential with an anticipated rebound in consumer demand in China, the company’s near-term outlook appears uncertain. Given NKE’s stretched valuation and uncertain near-term prospects, it seems prudent to wait for a better entry point in this stock.

S&P 500 Addition: Analyzing Whether Lululemon Athletica (LULU) Is a Buy Now

Vancouver, Canada-based athleisure fashion retailer Lululemon Athletica Inc. (LULU) is set to join the S&P 500 index on October 18, replacing video-game company Activision Blizzard Inc., which Microsoft Corp. (MSFT) recently acquired for $68.7 billion after crossing numerous regulatory hurdles. The announcement was greeted with a more than 10% surge in LULU's shares.

Historically, the news of inclusion in the S&P 500 positively impacted stocks, usually driven by increased liquidity and heightened interest from individual and institutional investors.

Let’s look into the investment cases for the activewear giant’s shares.

Boasting a market cap of over $50 billion, LULU continues its stride amid the turbulence rattling the broader apparel industry. The company has leveraged the pandemic-driven trend of home exercising, acquiring smart fitness platform Mirror for $500 million to tap into the flourishing at-home fitness sector. This acquisition was intended to fuel further purchases of LULU clothing.

However, this landmark M&A transaction faced obstacles in its course. As pandemic restrictions eased globally, a rush toward gyms and fitness studios saw Mirror struggling to retain users. Consequently, LULU had to write down the value of Mirror to a mere $58 million, even considering its sale. By year-end, LULU intends to discontinue the sales of Lululemon Studio Mirror, though service and support will continue for existing customers.

The company underwent a branding exercise, re-emphasizing its product as Lululemon Studio, shifting the attention toward Mirror’s subscription app instead of the hardware device. Despite the setbacks faced by Mirror, LULU’s agility in course-correcting failures speaks volumes of its ability to manage risks, propelling itself into becoming not just a top sportswear brand but also making its debut on the Fortune 500 list.

Recognizing a post-pandemic shift in the fitness industry, LULU has forged a strategic five-year partnership with connected exercise bike manufacturer Peloton Interactive (PTON). This alliance positions LULU as Peloton's leading athletic apparel partner, with select PTON instructors serving as LULU’s brand ambassadors.

However, industry analysts voiced skepticism about the potential marketing benefits, indicating that many PTON users may already be buyers of LULU products. Regardless, the partnership presents evident synergies and opportunities for joint promotion, expected to arise from exclusive product offerings and extended services across both brands, and the advantages attributed to increased scale and reach.

In addition to bike sales, PTON has demonstrated prowess in content creation, live streaming, and launching innovative classes, setting itself apart in the industry. The burgeoning collaboration with PTON bodes well for LULU as it continues to invest in its Studio platform.

LULU's reputation as a fashion retailer catering to affluent consumers has been instrumental in fueling its growth, pointing to its contribution to the conception of the “athleisure” trend, combining fit and high-quality fabric. The company’s gradual expansion into menswear and the recent foray into golf and hiking attire is noteworthy.

Moreover, its experimental approach and avoidance of “analysis paralysis” – an issue that has slowed down many retailers' adaptability to new consumer preferences – have significantly contributed to LULU’s success.

Despite industry-wide challenges, LULU experienced robust growth so far. Its home base, Canada, alongside the U.S., accounted for 78% of its revenue in the second quarter of 2023. During this quarter, the company opened 10 new company-operated stores, totaling 672 stores worldwide.

It also anticipates considerable growth opportunities internationally, particularly in the U.K. and China. LULU is poised to quadruple its international sales, buoyed by remarkable growth in the Chinese market. In the second quarter of 2023, LULU saw a 52% year-over-year increase in global sales. As of July 30, 2023, the company operated 126 stores in China, producing 12.6% of total sales, and Chinese sales spiked 61.3% year-over-year, supported by stable demand after relaxed pandemic restrictions.

LULU’s second-quarter results surpassed Wall Street's forecasts, with net revenue and net income climbing 18.2% and 18% year-over-year, respectively.

Growing Institutional Ownership

LULU’s robust financial health and fundamental solidity make it a compelling investment prospect for institutional investors. Notably, several institutions have recently modified their LULU stock holdings.

Institutions hold roughly 87.5% of LULU shares. Of the 1,173 institutional holders, 489 have increased their positions in the stock. Moreover, 124 institutions have taken new positions (972,619 shares).


LULU recently said that it was "off to a solid start" as the North American business improved, which led to an upward revision of its annual revenue and profit projections for the second time this year.

The athleisure wear producer is forecasting its revenue for 2023 to be between $9.51 billion and $9.57 billion, up from the previous projection of $9.44 billion and $9.51 billion. Simultaneously, an anticipated increase in profit is forecasted between $12.02 and $12.17 per share for the same fiscal year.

Stepping into the third quarter of 2023, LULU projects its net revenues between $2.17 billion and $2.19 billion, representing 17% to 18% growth. Earnings per share are expected to be between $2.23 to $2.28 for the quarter.

Furthermore, Lululemon unveiled its strategic aspirations under the Power of Three x 2 growth plan. To fortify its position in the global market, the company desires to multiply its business twofold – soaring from the 2021 net revenue of $6.25 billion to $12.5 billion by 2026.

The cornerstones guiding this ambitious growth map comprise product innovation, unprecedented guest experience, and wide-ranging market expansion. A distinct strategy underlining this objective is to double the revenue flow from men's wear and direct-to-consumer sales and to quadruple the international net revenue compared to figures from 2021.

Analysts expect its revenue and EPS for the fiscal third quarter ending October 2023 to increase 17.8% and 14.2% year-over-year to $2.19 billion and $2.28, respectively.

Bottom Line

LULU continues its journey toward becoming a global brand, displaying strong potential to rival industry heavyweights like Nike, Inc. (NKE) in the long run. This could be traced back to its impressive performance in recent quarters, consistently outperforming Wall Street's profit expectations.

This demonstrates solid fundamental business strength, a strong consumer base, and exemplary operational execution across all corporate levels.

Historically, LULU has been an excellent performer in the stock market. However, following a recent upsurge, its shares now command an even steeper premium. Its shares currently trade at a forward non-GAAP P/E of 34.23x, a 144.2% premium to the industry average of 14.02x.

Despite the increasingly challenging business backdrop, LULU maintains sturdy growth, evident in its recent quarterly report. Yet, considering the current circumstances of high inflation, there is the possibility that the sustained pressure on consumer spending will eventually take its toll on LULU.

Procuring stock at such a premium would only be justifiable because LULU's growth will persevere beyond this financial year and into the foreseeable future.

However, given the broader macroeconomic environment, investors may want to exercise caution and wait for a better entry point.

Wall Street's D-Day on Sept. 13 Brings High Stakes – 5 Stocks to Consider in the Aftermath

August’s Consumer Price Index (CPI) report, due to be released on September 13, 2023, holds immense significance as it will influence the Federal Reserve’s upcoming policy decision. The Fed’s decision on raising interest rates at the next FOMC meeting scheduled on September 19-20, 2023, could be a significant determinant of the market movement.

August’s CPI figures are important, especially after a surprising rise in prices in July, with the headline CPI rising 3.2% year-over-year, the first acceleration in more than twelve months. August’s inflation numbers would offer insight into whether inflation is easing and July’s rise in prices was a one-off.

The central bank had last raised rates by 25 basis points in late July, pushing the benchmark interest rate to the 5.25% - 5.50% range. The recent economic data has been mixed with the U.S. consumer spending in July rising the most in six months, and nonfarm payrolls increased by 187,000 in August.

However, the unemployment rate rose 3.8% in August, the highest since February 2022. Additionally, job openings edged down to 8.8 million, falling to their lowest level since March 2021. Towards the end of last month, Fed Chair Jerome Powell said that inflation is still too high and could require additional interest rate increases. However, he noted that policymakers would carefully proceed as they assess the incoming data.

A rise in energy prices is expected to have driven the increase in headline inflation last month. Economists forecast headline inflation to rise 3.6% year-over-year and 0.6% sequentially in August. Federal Reserve governor Christopher Waller said he currently sees nothing that would force the Fed to raise the short-term borrowing rates again.

In an interview with CNBC, he stated, “The biggest thing is just inflation. We got two good reports in a row.” The key now is to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”

When asked if rate increases can stop, Waller said, “That depends on the data.” “We have to wait and see if this inflation trend is continuing. We’ve been burned twice before. In 2021, we saw it coming down, and then it shot up. The end of 2022, we saw it coming down, then it all got revised away.”

“So, I want to be very careful about saying we’ve kind of done the job on inflation until we see a couple of months continuing along this trajectory before I say we’re done doing anything,” he added.

The CME FedWatch Tool indicated a 93% probability of the Fed keeping interest rates unchanged in September, while there is just a 53.5% probability for another pause at the November meeting.

Usually, interest rates and the stock market have an inverse relationship. If the prices rise higher than expected in August, the Fed might be compelled to raise interest rates, which could hurt the performance of stocks. In this scenario, investors may consider investing in stocks that are less sensitive to inflation, such as Unilever PLC (UL), Dominion Energy, Inc. (D), and Thermo Fisher Scientific Inc. (TMO).

On the other hand, if inflation shows signs of easing in August, the Fed may keep the benchmark interest rate steady. This could help stock prices to rise. In this scenario, investors may consider investing in cyclical names like Microsoft Corporation (MSFT) and NIKE, Inc. (NKE). They are deemed cyclical due to their sensitivity to rising interest rates. Without rate increases, these stocks are likely to perform well.

Let’s discuss these stocks in detail.

Microsoft Corporation (MSFT)

MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

On April 17, 2023, MSFT and Epic announced the expansion of their strategic collaboration to develop and integrate generative AI into healthcare by combining the scale and power of Azure OpenAI Service with Epic’s electronic health record (EHR) software.

MSFT’s corporate vice president of AI platform, Eric Boyd, said, “Our expanded partnership builds on a long history of collaboration between Microsoft, Nuance, and Epic, including our work to help healthcare organizations migrate their Epic environments to Azure. Together, we can help providers deliver significant clinical and business outcomes leveraging the power of the Microsoft Cloud and Epic.”

MSFT’s revenue grew at a CAGR of 14% over the past three years. Its net income grew at a CAGR of 17.8% over the past three years. In addition, its EBIT grew at a CAGR of 18.7% in the same time frame.

In terms of trailing-12-month gross profit margin, MSFT’s 68.92% is 43% higher than the 48.20% industry average. Likewise, its 48.14% trailing-12-month EBITDA margin is 432.7% higher than the industry average of 9.04%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 13.26%, compared to the industry average of 2.42%.

MSFT’s total revenue increased 8.3% year-over-year to $56.19 billion for the fourth quarter ended June 30, 2023. Its net cash from operations increased 16.8% year-over-year to $28.77 billion. The company’s net income increased 20% year-over-year to $20.08 billion. Also, its EPS came in at $2.69, representing an increase of 20.6% year-over-year.

Analysts expect MSFT’s EPS and revenue for the quarter ending September 30, 2023, to increase 12.5% and 8.8% year-over-year to $2.64 and $54.51 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 39.4% year-to-date to close the last trading session at $334.27.

Thermo Fisher Scientific Inc. (TMO)

TMO provides life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products, and biopharma services.

On August 14, 2023, TMO announced the completion of the acquisition of CorEvitas, LLC, a provider of regulatory-grade, real-world evidence for approved medical treatments and therapies, from Audax Private Equity.

TMO’s Chairman, President, and CEO Marc N. Casper said, “CorEvitas expands our clinical research business with highly complementary real-world evidence solutions, which is an increasingly important area and will help to enhance decision-making as well as the time and cost of drug development.”

“We are excited by the opportunity to further accelerate innovation and advance productivity for our pharma and biotech customers in their new work to deliver new medicines and therapeutics to benefit patients,” he added.

TMO’s revenue grew at a CAGR of 18.4% over the past three years. Its net income grew at a CAGR of 15.6% over the past three years. In addition, its EBITDA grew at a CAGR of 15.5% in the same time frame.

In terms of trailing-12-month net income margin, TMO’s 13.14% compares to the negative 5.71% industry average. Likewise, its 24.43% trailing-12-month EBITDA margin is 373.9% higher than the industry average of 5.15%. Furthermore, the stock’s 10.09% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.23%.

For the fiscal second quarter ended July 1, 2023, TMO’s revenues declined 2.6% year-over-year to $10.69 billion. Its adjusted operating income decreased 9% over the prior year quarter to $2.37 billion. The company’s adjusted net income declined 8% year-over-year to $2 billion.

Also, its adjusted EPS came in at $5.15, representing a decline of 6.5% year-over-year. On the other hand, its non-GAAP free cash flow rose 21.9% year-over-year to $1.26 billion.

Street expects its EPS and revenue for the quarter ending September 30, 2023, to increase 11.5% and 0.5% year-over-year to $5.66 and $10.73 billion, respectively. Over the past three months, the stock has gained 0.6% to close the last trading session at $518.27.

NIKE, Inc. (NKE)

NKE is engaged in the designing, marketing, and distributing athletic footwear, apparel, equipment, and accessories for sports and fitness activities. Its brand product offerings are in Running, Basketball, the Jordan brand, Football, Training, and Sportswear.

Over the last three years, NKE’s revenue grew at an 11.1% CAGR, while its EPS grew at a 26.4% CAGR during the same time frame. Its net income grew at a 25.9% CAGR over the past three years.

In terms of trailing-12-month gross profit margin, NKE’s 43.52% is 22.8% higher than the 35.45% industry average. Likewise, its 11.55% trailing-12-month EBIT margin is 58.7% higher than the industry average of 7.28%. Furthermore, the stock’s 7.56% trailing-12-month levered FCF margin is 49% higher than the industry average of 5.08%.

NKE’s revenues for the fourth quarter ended May 31, 2023, increased 4.8% year-over-year to $12.83 billion. Its gross profit increased 1.7% year-over-year to $5.60 billion. The company’s net income declined 28.4% year-over-year to $1.03 billion. In addition, its EPS came in at $0.66, representing a decline of 26.7% year-over-year.

Analysts expect NKE’s revenue for the quarter ended August 31, 2023, to increase 2.5% year-over-year to $13 billion. Its EPS for the same quarter is expected to decline 19.3% year-over-year to $0.75. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has declined 8% to close the last trading session at $97.67.

Unilever PLC (UL)

UL is based in London, the United Kingdom. It operates as a fast-moving consumer goods company. Its segments include Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream.

UL’s revenue grew at a CAGR of 5.7% over the past three years. Its net income grew at a CAGR of 12% over the past three years. In addition, its EPS grew at a CAGR of 13.2% in the same time frame.

In terms of the trailing-12-month EBIT margin, UL’s 16.32% is 106.7% higher than the 7.89% industry average. Likewise, its 18.29% trailing-12-month EBITDA margin is 60% higher than the industry average of 11.43%. Furthermore, the stock’s 42.06% trailing-12-month Return on Common Equity is 273% higher than the industry average of 11.28%.

UL’s turnover for the first half ended June 30, 2023, increased 2.7% year-over-year to €30.43 billion ($32.55 billion). Its operating profit rose 22.6% year-over-year to €5.52 billion ($5.90 billion). The company’s net profit increased 20.7% year-over-year to €3.88 billion ($4.15 billion). Also, its EPS came in at €1.40, representing an increase of 23.6% year-over-year.

In addition, its net cash flow from operating activities increased 10.4% over the prior-year period to €3.37 billion ($3.61 billion).

For the quarter ending September 30, 2023, UL’s revenue is expected to increase 4.7% year-over-year to $16.53 billion. Its EPS for fiscal 2023 is expected to increase 4.9% year-over-year to $2.89. Over the past year, the stock has gained 12.2% to close the last trading session at $50.45.

Dominion Energy, Inc. (D)

D produces and distributes energy in the United States. It operates through four segments: Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina, and Contracted assets.

On September 5, 2023, D announced that it concluded a robust and competitive sale process and executed three separate definitive agreements to sell its three natural gas distribution companies to Enbridge (ENB). The three LDCs include The East Ohio Gas Company, Public Service Company of North Carolina, Incorporated, Questar Gas Company, and Wexpro Company.

D's Chair, President, and CEO, Robert M. Blue, said, “The transactions announcement also represents another significant step in our business review, which is focused on repositioning the company to create maximum long-term value for shareholders, employees, customers, and other stakeholders.”

D’s net income grew at a CAGR of 62.4% over the past three years. Its EBITDA grew at a CAGR of 3.5% over the past three years. In addition, its EPS grew at a CAGR of 69.4% in the same time frame.

In terms of the trailing-12-month gross profit margin, D’s 46.31% is 19.2% higher than the 38.86% industry average. Likewise, its 45.90% trailing-12-month EBITDA margin is 40.2% higher than the industry average of 32.74%. Furthermore, the stock’s 50.59% trailing-12-month Capex/Sales is 73.2% higher than the industry average of 29.20%.

For the fiscal second quarter ended June 30, 2023, D’s operating revenue increased 5.5% year-over-year to $3.79 billion. Its adjustments to reported loss came in at $131 million, compared to adjustments to reported earnings of $1.11 billion. Its reported income per common share came in at $0.69, compared to a reported loss per common share of $0.58 in the prior-year quarter.

Street expects D’s revenue for the quarter ending September 30, 2023, to increase 3.4% year-over-year to $4.53 billion. On the other hand, its EPS for the same quarter is expected to decline 32.6% year-over-year to $0.79. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 4.4% to close the last trading session at $47.12.

The Role of China in the Global Stock Market and Its Impact on Investors

Towards the end of last year, China surprised the world with an abrupt pivot away from the strict restrictions of its long-espoused “Zero-Covid” policy., including quarantine requirements for inbound visitors. Despite an initial surge in infections, global businesses rushed in, hoping to cash in on the economic recovery.

Sentiments were further boosted by steps to stimulate economic growth and domestic consumption, mapped during and around the annual Central Economic Work Conference. These steps also helped ailing Chinese developers ease their liquidity strains and revive home purchases.

These measures seem to be working. According to the data released by China’s National Bureau of Statistics on April 18, the country’s GDP grew by 4.5% in the first quarter of the fiscal year. This was better than the forecast of 4% and the highest growth since the first quarter of last year.

Six months on, while the country is still open for business, the momentum has visibly slowed. While China’s exports in April grew by 8.5%, the country’s imports declined by 7.9% year-over-year as growth in the service sector softened, and manufacturing contracted again in three months.

With the 50-mark separating growth and contraction, the Caixin/S&P Global services purchasing managers’ index fell to 56.4 in April from 57.8 in the previous month, and the Caixin China general manufacturing purchasing managers’ index fell to 49.5 in April.

China’s top leaders have also taken note. A translated state media readout of the Plitburo meeting said, “At present the positive turn in China’s economy is primarily one of a recovery. Internal drivers still aren’t strong, and demand is still insufficient.”

As a result of this patchy growth, analysts at Morgan Stanley foresee a significant dip in demand and output of Chinese steel that could result in a 28% decline in iron ore prices by the end of 2023.

With markets mirroring this moderation, Citi has pushed back its stock rebound forecasts, and its analysts expect Hang Seng to take until the end of September to reach 24,000. Continue reading "The Role of China in the Global Stock Market and Its Impact on Investors"