Buffett Speculation Sends Nike Shares Into a Sprint

Nike Inc. shares rose 6.4% on Wednesday on speculation that Berkshire Hathaway Inc.’s Warren Buffett may be purchasing shares in the maker of athletic clothes and shoes, analysts and investors said.

Nike’s stock rose $3.875 to close at $64 in trading of 6.37 million shares, more than double the three-month daily average of 2.76 million.

Nike and Berkshire Hathaway executives declined to comment.

A purchase by Buffett would be a boon to Nike’s stock. Buffett typically invests in companies such as Coca-Cola Co. and Gillette Co. that are dominant in their industries, have highly recognizable brand names and show consistent revenue and earnings growth.

“It’s the kind of investment that he would make,” said analyst Jennifer Black Groves of Black & Co.

Wednesday’s speculation wasn’t a surprise to some Nike shareholders, who said Buffett assumed a stake in the company when he bought Geico Corp., a Washington insurance company, in January 1996.

“If any Berkshire Hathaway entity is buying Nike, it’s probably Lou Simpson at Geico,” said analyst Peter Russ of Shelby, Cullom Davis & Co. “Berkshire Hathaway has owned Nike for at least 17 months.”

Geico held 2.35 million Nike shares at the end of 1995, according to a previous filing with the Securities and Exchange Commission. Geico stopped filing separate SEC reports on its investment portfolio after Berkshire bought the company.

The speculation may have also pushed some “short” sellers to buy back Nike’s shares earlier than they expected, contributing to the rise in the stock’s price and volume.

Short sellers, who sell borrowed shares hoping to buy the security at a lower price and profit from the difference, increased their positions in the last two months on reports that U.S. sales were slowing. As of mid-May, 2.47 million shares were sold short, about double the average number of shares sold short the last two years.

“There’s a large short position with people who don’t want to bet against what they perceive is Warren Buffett,” Russ said.

Russ said Nike’s stock is “pretty fully valued” at $64 a share. He valued the stock at $57 to $59 a share.

Before Wednesday, Beaverton-based Nike’s shares had declined about 11% in the last five months on reports that U.S. sales of athletic shoes will be lower than expected.

Last month, Hambrecht & Quist analyst Shelly Hale Young lowered her estimate of fiscal 1998 U.S. footwear sales growth to 4% to 5% from 10% and downgraded the stock to a “hold” from a “buy.” The company’s fiscal year ends in May.

That report reinforced concerns stemming from Footstar Inc.’s Footaction chain, which said sales of athletic shoes and clothes were slowing amid declining enthusiasm for Nike products.

Nike has said that the recent slump in its shares was a “huge overreaction” to concerns about footwear sales growth because the company has been talking about a slowdown for months and expects “single-digit” growth in fiscal 1998. For the its third quarter ended Feb. 28, Nike’s U.S. footwear sales rose 47%. For the nine-month period, they were up 40%.