Given these developments, Evercore strategists have identified U.S.-listed companies that could benefit from China’s monetary stimulus. These companies have recently derived at least 10% of their revenue from China.
Consumer Companies Poised to Thrive in China
Potential for Stock Growth
Companies on Evercore’s list include:
Nike’s Revenue from China
In the past 12 months, Nike generated approximately 13% of its total revenue from China, as reported by FactSet. However, the company’s fiscal 2024 sales guidance was lowered in December due to weakening consumer demand in China. As a result, analysts are anticipating just over 4% growth for this calendar year, a significant drop from Nike’s mid-single-digit-percentage growth observed in previous years.
Nike has managed to outperform other brands by capitalizing on the digital space and expanding its presence in China. The company’s success in selling digitally and increasing its footprint in the Chinese market has contributed to its historic mid-single-digit-percentage growth. Nevertheless, if the Chinese consumer market proves stronger than expected, Nike could potentially experience higher sales than the current forecast.
While Nike’s stock price of $103 remained relatively stable following the China news (from a close of $101.90 on Tuesday), it still trades at 25 times the expected earnings per share for the upcoming year. This valuation is 27% higher than the S&P 500’s multiple of 19.9 times. Historically, when the market has shown confidence in Nike’s earnings-per-share growth, the company’s stock has traded at almost double the index’s multiple. Therefore, improved sales growth, particularly in China, could unlock various benefits such as higher profit margins, increased share buybacks, more earnings growth, and ultimately stock gains.
State Street’s Revenue from China
Among the companies reliant on revenue from China is State Street, an asset management firm that derived approximately 11% of its revenue from the country in the past year. The firm’s performance is closely tied to the state of the Chinese markets. Consequently, any improvements in these markets would positively impact State Street’s revenue.
One significant factor that influences State Street’s revenue is asset prices. When asset prices rise, the firm’s assets under management also increase, leading to higher revenue through management fees. Unfortunately, markets, including the S&P 500 and U.S. Treasury bond prices, faced challenges in 2022. Consequently, State Street experienced a decline in fee revenue. Although U.S. markets rebounded in 2023, the Shanghai Composite Index and Hang Seng Index both experienced negative growth, which further contributed to a decline in fee revenue for State Street.
Considering State Street’s investors, they are eagerly hoping to witness a recovery in Chinese markets. A revival of the Chinese markets would undoubtedly bode well for State Street’s revenue and overall performance.
Nike’s Stock Potential: Still Room to Rise
Despite a temporary setback, Nike’s stock continues to hold strong potential. While it currently sits 19% below its multi-month high, reached in early February 2023, it appears ready for an impressive rebound.
As identified by Evercore, Nike is just one of several stocks with promising prospects. With a renewed momentum, Nike may very well be gearing up for a substantial climb in the near future.