NIKE, Inc. (NKE)

Equity
US
Consumer Cyclical

RISK

RETURN

Key risk factors

Negligible price volatility

Strong trading liquidity

Resilient to price shocks

Key return factors

Very strong margins and returns

Greatly overvalued vs peers

Good growth

Company profileNIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells men's, women's, and kids athletic footwear, apparel, equipment, and accessories worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. In addition, it sells a line of performance equipment and accessories comprising bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment for sports activities under the NIKE brand; and various plastic products to other manufacturers. The company markets apparel with licensed college and professional team, and league logos, as well as sells sports apparel. Additionally, it licenses unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts through NIKE-owned retail stores, digital platforms, independent distributors, licensees, and sales representatives. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

26.50

25.00

PEG

3.60

P/B

9.80

7.00

P/S

2.70

P/FCF

22.30

20.50

EV/EBITDA

23.60

19.70

From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 15ppts over six months and grown 4ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 112 and suggests 22% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 137.5. This translates into 50% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 75.0. This is equivalent to 18% downside potential in the worst case.

Profitability: Very strong

RoE

NIKE, Inc. reported a return on equity (RoE) of 36.9% in the last 12 months, up from 36.0% in FY23. The market consensus projects an RoE of 36.4% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 14.0% in the last 12 months, an increase from 13.8% in FY23. The market analysts predict that RoA will be 14.6% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 18.5%, above the peers. The consensus estimate for FY24 for RoCE is 19.3%, again ahead of the peers.

Net margin

EBITDA margin

Historically, NKE has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 10.1%, down from 10.3% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 11.6% in the last 12 months, a decline from 11.8% in FY23.

RoIC / WACC = 2.7(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.7 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

NKE reported revenue of USD 51 581mn in the last 12 months, up 0% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 1% from FY23 to USD 3.43. Market expects EPS to reach USD 3.6012 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been steady. This all contributed to continued EPS growth (positive-to-neutral). FCF has grown rapidly, much better than EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note solid return on capital, strong debt servicing capacity, and solid cash flow generation, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and inadequate interest coverage.

Volatility: Negligible

In normal market circumstances, NKE is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from low to minimal.

Stress-test: Resilient

In highly turbulent market conditions, NKE is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.

Selling difficulty: Very low

NKE boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.