S&P Global (NYSE: SPGI) announced that Nike (NYSE: NKE) will be removed from the S&P 100, effective Sept. 21, as part of its quarterly rebalancing. Honeywell Aerospace, Simon Property Group, and Colgate-Palmolive will also be removed, while Dell Technologies, Palo Alto Networks, Arista Networks, and Sandisk will be added.
Here’s why Nike is being removed from the S&P 100, whether it presents an ominous warning for its potential deletion from the Dow Jones Industrial Average (DJINDICES: ^DJI), and whether the blue chip dividend stock is a good buy now.
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Justifying Nike’s S&P 100 removal
The S&P 100 isn’t the 100 largest S&P 500 (SNPINDEX: ^GSPC) components by market cap. Rather, it’s a curated sector that represents blue chip companies across stock market sectors and industries with a focus on megacap and large-cap behemoths.
Nike has remained in the index due to its industry leadership, not its size. Nike is now the 213th-highest-weighted company in the S&P 500. It’s also the lowest-ranked component in the iShares S&P 500 100 ETF — which uses the S&P 100 as a benchmark.
Nike’s removal makes sense given that its stock price continues to fall and its industry leadership isn’t what it used to be. What’s more, Dell, Palo Alto, Arista, and Sandisk have all gone up so much that they are all in the top 50 in S&P 500 components by market cap. Nike’s industry leadership premium no longer justifies its inclusion in the S&P 100 over companies that are worth several times more and contributing to the S&P 500’s gains, whereas Nike has been a drag on the index.
As you can see in the chart, Nike is at its lowest level in more than a decade, with revenue and earnings down in recent years and operating margins plummeting from the low- to mid-high teens pre-pandemic to under 9% today. There’s a laundry list of issues at Nike, including supply chain and corporate strategy blunders, slowing growth in China, tariffs, domestic consumer spending pressures, and increased competition from formidable rivals.
Even with these issues, it’s important to remember that investors care more about where a company could be headed than where it has been. Investors may take one glance at the stock’s price action and assume Nike is a no-brainer buy. But Nike hasn’t returned to growth, and its runway for doing so is shrouded in dense uncertainty.
