Nike Inc (NKE)

Conclusion

Nike designs, develops, markets and sells athletic footwear, apparel, equipment and accessories through wholesale accounts and its own direct channels. At 39.88 USD per share, the company has a market capitalisation of 48.01 billion USD.

The verdict is undervalued. Today's multiples sit far below their ten-year medians: the price-to-earnings ratio is 15.5 against a median of 33.5, and EV/EBITDA is 11.1 against 23.1. The fair value band runs from 41.23 to 61.84 USD with a midpoint of 51.54 USD, giving a margin of safety of 29.2%. The DCF gives 16.98 USD per share, far below the price, while the fair value from historical multiples is 86.09 USD. The reverse DCF implies growth of 15.0% a year, against revenue growth of 0.8% over five years and a five-year decline in free cash flow per share of 16.9%.

What supports the case is the balance sheet and returns on capital. The Altman Z-score is 3.21, net debt to EBITDA is 0.59, and ROIC of 16.9% is well above a WACC of 8.9%. What would break it is the earnings trend: EPS fell at a five-year compound rate of 10.0%, analysts cut the current-year estimate by 27.5% over 90 days, and the operating margin of 8.2% sits below its ten-year median of 12.2%.

Financial health

Financial strength is green, held up by a Z-score of 3.21, net debt to EBITDA of 0.59, interest coverage of 16.8 and a current ratio of 2.07. The quick ratio is 1.19 and debt to equity is 0.73, both as reported. The Altman Z-score of 3.21 falls in the safe zone, though the model was designed for manufacturers and Nike is a brand owner. Insolvency risk: low, about 0.4% by the estimate of the Ohlson model over one to two years. The balance sheet shows no sign of distress, and the five-year debt-to-revenue growth of 1.4% is modest.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 92.3% over five years and an accrual ratio of 0.6%. Trailing conversion is weaker at 68.1%. Stock-based compensation is 1.5% of revenue, and free cash flow after it is 1.41 billion USD. The share count fell at a five-year compound rate of 1.6%, which points to buybacks. The Piotroski score is 5 of 9. The Beneish M-score is not available. Eight of eight recent quarters beat estimates, with an average surprise of 46.6%, but estimates are moving down: the current-year figure is down 27.5% over 90 days with 32 downward revisions and none upward in the last 30 days.

Profitability

Profitability is yellow. ROIC of 16.9% against a WACC of 8.9% gives a given spread of 8.0%, which is the strongest signal here. Margins are below their medians: gross margin 43.1% against 44.2%, operating margin 8.2% against 12.2%, and net margin 6.7% against 10.1%. Margin stability is 21.8%. Return on equity is 20.3%, but the DuPont split shows it is lifted by leverage: a net margin of 6.7%, an asset turnover of 1.21 and an equity multiplier of 2.58. Most of the return therefore comes from the balance sheet structure rather than from margins. The five-year median ROIC of 33.4% is well above today's 16.9%.

Growth

Growth is yellow. Revenue compounded at -3.2% over three years, 0.8% over five and 3.7% over ten. Revenue grew in 8 of the last 10 years. Earnings per share compounded at -13.4% over three years, -10.0% over five and -0.3% over ten. Free cash flow per share fell at -22.0% over three years and -16.9% over five, though it rose at 2.8% over ten years. The next-year EPS estimate shows growth of 21.9%, but that forecast is being revised down sharply.

Valuation

Valuation is green. The price-to-earnings ratio of 15.5 compares with a ten-year median of 33.5, a premium of -53.7%. EV/EBITDA of 11.1 compares with 23.1, a premium of -51.9%. Price to free cash flow is 22.8 against 33.9. The DCF gives 16.98 USD at a discount rate of 10.05%, with a terminal value share of 49.9%. The fair value band runs from 41.23 to 61.84 USD. The reverse DCF implied growth of 15.0% is set against five-year revenue growth of 0.8% and free cash flow per share growth of -16.9%. The dividend yield is 5.05% and the payout on free cash flow is 115.3%, so the dividend is not covered by free cash flow. The fair value is an order of magnitude built on fixed assumptions, not a price target.

Risks

The main risk is that earnings keep shrinking. EPS has fallen over three and five years, and the current-year estimate is down 27.5% in 90 days. If demand does not recover, the discounted cash flow value of 16.98 USD suggests the fair value band is far too optimistic. Weak operating margin (8.2%) and a dividend paid above free cash flow (115.3% payout) would limit room for error. Trailing free cash flow conversion of 68.1% is well below its five-year level, so cash generation is less reliable than the long-run record suggests. The Beneish M-score is not available, so manipulation risk cannot be assessed. The analysis also lacks a debt maturity schedule and revenue by segment, so refinancing risk and regional exposure cannot be checked.