Nike (NKE) shares continue to slide for one primary reason which the Zacks Rank has warned investors about for the past two years: persistent downward EPS estimate revisions by Wall Street analysts.

In just the past few months the consensus EPS estimate for FY 2027 (ends May) has declined by 20% from $2.00 to $1.80. And even next fiscal year is seeing the same revision trend, dropping over 10% from $2.70 to $2.40.

The profit collapse persists as revenues also fall flat. The current fiscal year Zacks consensus estimate for Nike's top line now sits at $46.32 billion among 13 analysts. This would represent slight negative growth from the prior year's sales of $46.4B.

The Picture Worth Billions of Dollars

Revenues are certainly vital to a business. But the Zacks Rank focuses on bottom line profits -- and more specifically, their change in direction and magnitude -- to evaluate which companies have the strongest and weakest relative growth traction.

Nike 12-month trailing Net Income slid from $5.7B at the end of the May quarter in 2024 to $2.25B at the end of the Feb quarter this year.

And how could an investor see this trend developing in real time and know if it was persistent over several quarters?

By studying the Zacks Price, Consensus, and EPS time series which shows annual earnings estimate revision trends as a single moving line...

If chart does not appear, just click here.

This data view comes from tracking analyst EPS revisions, which is exactly what the Zacks Rank does every day. It's a vital visual tool that is the simplest way to quickly grasp the Zacks Rank in action for any stock, and its the very first graphic you see on every company quote page.

Under the Hood: How the Zacks Rank Works

I call the Zacks Rank a "bell curve cage match" because we take all the Wall Street analyst EPS revisions on any given day and throw them into a calculation engine that sorts and "ranks" them by various weights, including magnitude and agreement (what percentage of analysts providing estimates agreed on the change in direction, up or down).

So we end up with over 4,000 stocks ranked by their relative earnings momentum, up and down. We call the top 5% and bottom 5% Zacks #1 Rank Strong Buys and Zacks #5 Rank Strong Sells, respectively.

The next 15% in from the "tails of the bell" are Zacks #2 Rank Buys and Zacks #4 Rank Sells. And the middle 60% of stocks are those with no meaningful revision trends to compete for either the penthouse or the cellar.

The way that founder and MIT quant Len Zacks makes sure the Zacks Rank is relevant before and after company earnings reports is by only running the data on the last 60 days of estimate revisions. Think of it as a rolling 60-day window, where older revisions drop out as less important information before the next company report card.

In the 1970s, Zacks studied the correlation between stock price returns and company earnings and published his findings in 1979 in the Financial Analysts Journal with the title "EPS Forecasts -- Accuracy Is Not Enough."

His thesis was that earnings estimate revisions were the predominant driver of near-term stock returns -- thus more important than what the company said about their growth.

How the Zacks Rank Assists Long-Term Investors

The model Zacks conceived of to track the phenomenon quickly became one that investment bank analysts and institutional investors adopted across Wall Street in the 1980s.

The beauty of this short-term indicator is that it captures a lot of the meaningful activity from analysts working on their research and earnings models before and after quarterly reports.

But if you extend the growth trajectories of what strong and weak companies tend to report quarter after quarter, you can see how the Zacks Rank will keep giving you fresh 60-day signals several times per year so you can find the strong ones and avoid the weak ones.

Bottom line: Since the Zacks Rank warned investors about Nike for many quarters while the stock slid from $140 to $40 in the past 5 years, it should be a vital weapon in your investor arsenal.

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NIKE, Inc. (NKE): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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