NKE Market Research & Analysis Report
Updated Apr 28, 2015

Growth and Balance Sheet

The company reported record net income of $791 million, or 89 cents diluted earnings per share, for the third quarter of fiscal year 2015 ending February 28. That's up from net income of $682 million, or 75 cents diluted earnings per share for the same quarter last fiscal year. Revenues for the third quarter were $7,460 million, up from $6,972 million for the same quarter last year. Except for the equipment segment, the rest of company segments recorded an increase in revenue in comparison to the same quarter last year. Nike Footwear revenue was up 8.4% to $4,570 million; Nike Apparel revenue was up 3.5% to $1,959 million; Nike Equipment revenue was down 8.8% to $382 million; and Converse revenue was up 28.1% to $538 million. Company’s gross margin increased above 140 basis points to 45.92% of sales from 44.51% in the third quarter of fiscal year 2014. The operation margin improved to 31.9% of sales from 31.1% in the third quarter of fiscal year 2014. Net cash provided by operating activities for the quarter ended February 28, 2015 was $2,408 million, in comparison to $1,995 million for the quarter ended February 28, 2014. Cash and cash equivalents as of February 28, 2015 were $3,015 million, in comparison to $1,864 million as of February 28, 2014. NKE forecasted fourth quarter of fiscal year 2015 EPS are expected to be from 78 cents to 88 cents, compared to actual EPS of 78 cents for the fourth quarter of last fiscal year. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 2.72 and the industry average ratio is 1.21. The quick ratio of 1.96 is also superior to the industry average of 0.93. In terms of efficiency and effectiveness, the asset turnover ratio of 1.58 is much better than the industry average of 0.38; the inventory turnover ratio of 4.08 is also at much better levels than the industry average ratio of 1.47; and the ROE of 26.43% is at healthier levels than the industry average of 22.3%. 

Valuation

NKE PE stands at 28.85 above the industry average of 24.8, and above the stock market average represented by the S&P 500 average of 20.98. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 18.75x to 25.87x trailing 12-month earnings. NKE's current Price/Sales of 2.87 is above the average of its industry of 1.53. NKE’s head to head comparison to its main competitors shows that the company has lower gross margin, but still above the industry average. However, the achieved operating margin of the company is the best result out of the selected competitors, and it is double the industry average. The quarterly revenue growth of the company is higher than the growth rate achieved by Adidas, but below Under Armor growth, and it is above the industry average. The company trades at P/E ratio that is lower than the ratios of its peers. The P/S ratio at which the company is currently trading is above what ADDYY is trading at, but substantially below UA’s P/S ratio. NKE’s twelve trailing months EBITDA is $4.80 billion, highest result from the selected peers, and above the industry average EBITDA of $21.88 million. The stock is currently trading below its intrinsic value of $125.43, this suggests that the stock is currently undervalued at these levels. The beta of 0.51 implies lower volatility of the stock with respect to the S&P 500. NKE has shown favorable earnings consistency over the last five years. Company’s earnings have increased by 14.41% over the same period. The current quarter earnings in comparison to the same quarter last year have increased by 18.67%. NKE’s Total Debt/Equity of 10.12 is below the required maximum, and it is below the industry average of 39.6. NKE’s current price levels are below the maximum level, 2.75% below the 52 week high of $103.79, and the technical analysis give neutral to positive view of the stock. The majority of analyst ratings are outperform. NKE has a dividend payout ratio of 30% and trailing annual dividend yield of 1.00%.

About NKE

NIKE, Inc. (NIKE) is engaged in design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE is a seller of athletic footwear and athletic apparel across the world. The Company sells its products to retail accounts, through NIKE owned retail stores and internet websites. The Company focus its NIKE Brand product offerings in eight categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear and Golf. Basketball includes its Brand Jordan product offerings and Men's Training includes its baseball and United States football product offerings. The Company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities. The Company operates in North America, Western Europe, Central & Eastern Europe, Greater China, Japan and Emerging Markets.

Competitor Comparison

Nike, Inc. (NYSE: NKE) N.V.

Highlights

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories for men, women, and kids worldwide. The stock closed yesterday’s trading session at $100.94. In the past year, the stock has hit a 52-week low of $71.53 and 52-week high of $103.79. The intrinsic value of the stock is above the current price. NKE has a market cap of $86.78 billion and is part of the Consumer Goods sector.

• Dominant market position built on a strong brand portfolio  
• Multi-channel approach   
• Strong focus on R&D activities     

• Dependence on independent contract manufacturers    

NKE Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. NKE's 52 week high is $103.79, current price is $100.94, is 2.75% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 28.85, the average industry P/E ratio is 24.8 and is above the S&P 500 P/E ratio of 20.98.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.18 % of NKE stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

NKE is trading in the range of $98.15 - $102.00 in the past 30 days. The stock has been showing support around the level of $97 and resistance in the $102 range. The stock is trading above the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 58.49. From May to November, last year, the stock rose from around $70 to the psychological resistance level at $100. The strong bullish trend was followed by a three and a half months of consolidation, which ended with the stock gapping above the resistance at $100. Since then, the stock has tested few times the support level at around $98, but the support always held. Our indicators give neutral to positive view of NKE.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 9 Buy, 11 Outperform, and 7 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. NKE’s annual EPS for the last 5 years were 1.93, 2.20, 2.35, 2.70, and 2.97 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. NKE’s Total Debt/Equity of 10.12% is below the required maximum, and it is below the industry average of 39.6%.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. NKE’s adjusted EPS growth for this quarter relative to the same quarter a year earlier is 18.67%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. NKE’s annual earnings growth rate over the past five years is 14.41%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.