UNIVERSITY OF OREGON
INVESTMENT GROUP
February 18th, 2011
Consumer Goods
Nike, Inc.
RECOMMENDATION: BUY
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparables Analysis
Current Price
(as of 2/14/11)
Target Price
$61.23 - $92.49
NKE / NYSE
0.89
23,188,000
2,313,760
$42.0B
85.77
$0.31
1.44 %
$94.51 (50%)
$102.23 (50%)
$85.77
$98.37
Summary Financials
Revenue
Net Income
2010A
$19.014 billion
$1.907 billion
BUSINESS OVERVIEW
Nike, Inc. (NYSE: NKE) was incorporated in 1968 and went public in 1980. Nike employs over 36,000 people
globally and is headquartered in Beaverton, Oregon. The company is the world‟s leading designer, marketer, and
manufacturer of athletic footwear, apparel, equipment and accessories for a variety of sports and fitness activities.
Forbes Magazine has named Nike the World‟s Most Admired Company within the apparel industry each of the past
five years. Nike primarily operates in the Americas, Europe, the Middle East, and Asia Pacific.
Covering Analyst: Stephan Schneck
Email: sschneck@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
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THE NIKE BRAND
The Nike Brand and the symbolic „Swoosh‟ are instantly recognizable worldwide. However, back in 1964 Nike was
simply Blue Ribbon Sports, a company created by Phil Knight and legendary track coach Bill Bowerman. It wasn‟t
until 1971 that the concept of Nike, the Greek winged Goddess of victory, was introduced. The Nike Swoosh, which
represents the wing of Nike, was created by a student at Portland State University in 1971 and sold to Knight for
$35.00. Nike was officially launched in 1972 and the brand has been evolving ever since. In 2010, Forbes Magazine
named Nike the World‟s 31st Most Valuable Brand at a value of $13.5 billion.
PRODUCTS
Nike‟s principle business activity is the sale of footwear, apparel and accessories, and performance equipment. Nike is
the largest seller of athletic footwear and apparel in the world. The three product segments are described below:
Footwear
Nike produces athletic footwear products that are intended for specific athletic use, although a large percentage of the
products are worn for casual purposes. Nike offers high quality, innovative shoes that are designed for men, women
and children. Footwear continues to lead product sales with shoes available for a variety of sports and activities. The
top-selling footwear categories that drive revenues are running, training, basketball, soccer, sport-inspired casual
shoes, and kids‟ shoes. In addition, Nike also markets shoes designed for aquatic activities, baseball, cheerleading,
football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and
recreational uses.
Apparel and Accessories
Nike sells sports apparel and accessories covering most of the categories mentioned above, sports-inspired lifestyle
apparel, bags and accessory items. Nike‟s apparel and accessory products are often bundled with footwear items and
sold as a “collection.” The apparel and accessory products are trademarked under the Nike brand and sold in the same
distribution channels as footwear. Nike also markets apparel with licensed college and professional sports teams and
league logos.
Performance Equipment
Under the Nike Brand name Nike sells a line of performance equipment including bags, socks, sport balls, eyewear,
timepieces, electronic devices, bats, gloves, protective equipment, golf clubs, and other equipment designed for sports
activities.
NIKE BRAND PORTFOLIO
In addition, Nike has five wholly-owned subsidiaries, which play a significant role in future growth plans. The affiliate
businesses contributed approximately 13.2% of the company‟s revenue in 2010. The subsidiaries are described below:
Cole Haan
Recognized as one of America‟s leading luxury brands, Cole Haan offers high-quality men‟s and women‟s footwear,
accessories, and outerwear. Cole Haan, headquartered in New York City, operates more than 180 retail stores
throughout the United States, Canada, the Middle East, and Asia. In 2008 Cole Haan announced that it would go furfree for business and sustainability reasons. Nike acquired Cole Haan in 1988 for $95 million.
Converse Inc.
Converse, Inc. was established in 1908 and has built a reputation as “America‟s Original Sports Company.” Historic
shoes such as the Chuck Taylor All Star, the Jack Purcell, and the One Star have contributed to Converse‟s rich
history. Converse currently offers a diverse product line including premium lifestyle footwear and apparel for men and
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women. Converse products are primarily sold by global retailers in 160 countries and also by 50 company-owned retail
stores. In July 2003, Nike entered into an agreement to purchase all the equity shares of Converse for $305 million.
Hurley International LLC
Located in Costa Mesa, California, Hurly designs and distributes a product line of sports apparel and footwear the
surfing, skateboarding, and youth lifestyle demographic. Seen as a youthful brand, Hurley‟s products are designed for
younger generations that value the outdoors and nature. Nike acquired Hurley in February 2002.
NIKE Golf
Headquartered at Nike‟s World Headquarters in Beaverton, Oregon, Nike Golf designs and markets golf equipment,
apparel, balls, footwear, and accessories worldwide. Nike Golf works closely with professional golfers to develop
groundbreaking innovations that progress the sport. Nike sponsors some of the most prominent athletes in the game
including Tiger Woods and Michelle Wie.
Umbro Ltd
Founded in 1924 and headquartered in Manchester, England, Umbro designs, distributes, and licenses athletic and
casual footwear, apparel, and equipment for soccer enthusiasts under the Umbro trademark. Umbro has developed
exclusive endorsements and distribution rights with soccer teams throughout the world. The endorsements provide
Umbro with the rights to the products worn on the field in addition to other apparel and accessories. Most notably,
Umbro is the exclusive sponsor of the English National Team, which includes the distribution rights for the team‟s
playing and training “kits.” Nike completed its acquisition of Umbro in March 2008 for a purchase price of 290.5
million British Sterling ($576.4 million).
UNITED STATES MARKET
In 2010, Nike derived 42% of total revenues from the US market and Nike‟s three largest customers accounted for
approximately 24% of total sales in the US. Nike sells to more than 23,000 retail accounts in the US, including
footwear stores, sporting goods stores, athletic specialty store, department stores, skate, tennis, and golf shops, and
other retail accounts. Nike utilizes a “futures” program in the US, which allows retailers to order five to six months in
advance of delivery with the promise that their orders will be delivered by a specific time at a fixed price. In 2010, the
futures program accounted for 89% of Nike‟s US wholesale footwear shipments, excluding its subsidiaries.
Nike operates 19 sales offices throughout the US to facilitate sales. In addition, Nike Brand products are sold through
346 Nike outlets in the US, including 145 Nike factory stores (which primarily carry overstock and close-out
merchandise), 12 Nike stores, 11 NIKETOWNs (designed to showcase Nike products), 3 Nike employee-only stores,
106 Cole Haan Stores, 51 Converse factory stores, and 18 Hurley stores. To control the supply chain, Nike has
distribution centers in Tennessee, California, and New Hampshire.
INTERNATIONAL MARKETS
In 2010, Nike derived 58% of total revenues from the international market. Products are sold to retail accounts,
through Nike-owned retail stores, and a variety of independent distributors and licensees worldwide. Nike‟s sells to
more than 24,000 retail accounts outside of the US and operates 14 distribution centers in many countries and
regions, including Canada, Asia, Latin America, and Europe. Nike utilizes a futures program internationally, similar to
the US program described in the US markets section. During 2010, Nike‟s three largest customers accounted for
approximately 8% of international sales.
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COMPETITION
Nike faces intense competition throughout the United States and on a global scale in the athletic footwear, apparel,
and equipment industry. Nike is the largest seller of athletic footwear and apparel worldwide, but faces competition
from athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and
large comparable companies such as Adidas that have a diversified line of athletic and leisure shoes, apparel, and
equipment. In addition to stiff competition, Nike is conscious of the rapid changes in technology and consumer
preferences within the markets it operates. To differentiate from the competition, Nike contracts with prominent and
influential athletes, coaches, teams, colleges, and sports leagues to endorse the Nike Brand and products.
ADVERTISING
Nike has received numerous accolades for its innovative approach to advertising. In 1982, Nike partnered with the
newly formed advertising agency Wieden and Kennedy and aired its first national television ad during the 1982 New
York Marathon. The partnership between Nike and Wieden and Kennedy remains intact today. Nike has received the
Emmy Award for best commercial twice (2000, 2002) since the award category was introduced in 1990. Also, Nike is
the only two-time winner of Advertiser of the Year at the Cannes Film Festival (1994, 2003). Nike‟s creative advertising
approach has translated into impressive profits and growth. Three of Nike‟s most successful ad campaigns and the
ensuing implications are discussed below:
Just Do It
In the late 1970‟s to early 1980‟s, Reebok dominated the sports apparel market due to their presence in the aerobics
market and the general exercise enthusiasm among women. At the time Nike offered little more than a line of shoes
for marathon runners. In an attempt to tackle the entire footwear market, Nike utilized its new partnership with
Wieden and Kennedy and launched the “Just Do It” campaign. The campaign tied to Nike‟s brand with smart,
humorous, and cool advertising and made sports apparel popular, even if a consumer wasn‟t active. The campaign was
wildly successful as Nike‟s market share jumped from 18% to 43% in the 1990‟s.
“Bo Knows”
The advertising campaign “Bo Knows,” featuring multi-sport athlete Bo Jackson, also
revolutionized Nike‟s business. The “Bo Knows” series ran between 1989 and 1990
promoting a line of cross training shoes, designed for athletes who play multiple
sports per year. Cross trainers were a novel product at the time, but following the
commercial series became Nike‟s second best selling shoes.
Michael Jordan and Mars Blackmon (aka Spike Lee)
During the late 1980‟s and early 1990‟s Michael Jordan was emerging as one
of the greatest basketball players of all time. The Air Jordan line of sneakers
had just been launched and the up and coming film director Spike Lee, who
had a passion for Air Jordan sneakers, partnered with Jordan to launch a
series of commercials and print ads. Lee played Mars Blackmon, the alter ego
of himself, and became the primary pitchman for the Air Jordans. The
popularized line “Is it the Shoes” along with the unique nature of the ads
revolutionized Nike advertising. Following the series of ads the Air Jordan
line grew tremendously and a new shoe design is introduced annually.
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BUSINESS AND GROWTH STRATEGIES
Nike has a growth plan in place that addresses growth possibilities in five different dimensions: brands, consumer
categories, geographies, product types and wholesale, and direct-to-consumer distribution. The four areas targeted for
growth are described below:

Brands: Nike has been able to take over key markets around the world through timely acquisitions. Nike
plans to extend the market presence of these brands internationally while simultaneously searching for
additional strategic acquisitions.

Consumer categories: Nike continually breaks down its customers into categories to understand how to
best serve the needs of its customers. Growth opportunities always begin with the customer and Nike
identifies strategies to create competitive advantages across product lines, brands, and distribution. If Nike
discovers an underserved market, it may choose to enter the market organically or through the acquisition of
an already well-positioned company.

Geographies: Nike breaks up the globe into developed markets and developing markets. Developing
markets, including Central and Eastern Europe, Greater China, and Emerging Markets, contributed to almost
$5 billion of revenue for the Nike Brand in 2010. Nike has established infrastructure and profitable
businesses in these markets and has brand leadership and expanding distribution, which will contribute to
future growth. Developed markets, including North America, Western Europe, and Japan, are also a source
for tremendous future growth. Nike is already the leader in nearly all the developed markets, but has
development initiative to drive growth. Nike plans on reinventing the distribution landscape to create capacity
for new growth.

Product types: Nike is already one of the largest apparel companies in the world; however, its apparel market
share is still significantly lower than it is for footwear. Nike plans to accelerate apparel product innovation to
capitalize on the growth available in the apparel market.

Wholesale and direct-to-consumer: To build market capacity, Nike is in the process of creating elevated
category presentations with its wholesale partners in stores and online. This process will increase the
availability of Nike products worldwide. Also, Nike expects to add between 350 and 300 owned stores
worldwide, which will allow Nike to double its direct-to-consumer business by 2015.
MANAGEMENT AND EMPLOYEE RELATIONS
Phil Knight
Mr. Knight, a co-founder of Nike, currently serves as the Chairman of the Board of Directors. A
graduate of the University of Oregon, Knight teamed up with his track coach Bill Bowerman to
create Blue Ribbon Sports in 1964. In 1971, Knight devised the name Nike and trademarked the
„Swoosh.‟ Although Knight resigned from the role of CEO in 2004, he is still actively involved
with operations. As Chairman of the Board he listens to ideas, offers his insight, and pushes to
constantly grow and innovate.
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Mark Parker
Mr. Parker was appointed CEO and President in January 2006. Parker has been employed at Nike
since 1979 and has held a variety of positions throughout his tenure. A collegiate runner at Penn
State University, Parker joined Nike as a footwear designer and has been a driving force of
innovation at Nike ever since. In 2010 Fast Company named Parker “The World‟s Most Creative
CEO.” Much of the growth of Nike‟s global business portfolio, including Cole Haan, Converse,
Hurley, and Umbro, has been attributed to Parker. In August 2010, Parker took home more than
$14.5 million in compensation, a 268% raise from the previous year.
RECENT NEWS
January 18th, 2011 – Nike Introduces New Look for French Soccer Team
The 2010 World Cup was a disastrous experience for the French national soccer team as
tensions between players and coaches escalated into a strike by multiple players. In 2008 Nike
invested 300 million euro ($400 million) to take over the sponsorship of the national team from
Adidas. The deal is the most lucrative within the international game and Nike unveiled a
radically different type of apparel that deviates from the traditional French look. The goal of
redesigning the apparel was to broaden the team‟s international appeal and turn the team into a
“European juggernaut” like the Brazilian National Team or the New York Yankees.
January 18th, 2011 – India Presents Opportunity for Nike
Nike has actively pursued expansion in emerging markets, but has yet to tap into the second most populous market,
India. In addition to a large population, reports have shown that there is a growing interest in recreational products
and services in India. The status of sports and the urban population has been rapidly expanding in India. The
premium-brand sportswear market is estimated at $1 billion, with Adidas and Reebok controlling 75% of the market.
Nike‟s market share is estimated at 15% to 20%, which means India only accounts for 1% of Nike‟s revenues. A large
opportunity is available in India if Nike can leverage its market leadership in other countries and strategically penetrate
the Indian market.
October 13th, 2010 – Nike to Replace Reebok as NFL’s Licensed-Apparel Maker
The NFL announced that Nike would replace Reebok as the league‟s exclusive provider of onfield apparel, including uniforms, clothing worn on the sidelines, and fan gear. The terms of the
deal were not revealed, but the NFL disclosed the contract was for five years, beginning April
2012. The deal is anticipated to be more than $25 million annually. Although it is an expensive
contract, Nike believes it will pay for itself since the athletes will effectively serve as on-field
billboards that are marketing the products to consumers.
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INDUSTRY
Nike operates in the apparel and footwear (retailers and brands) industry of the Consumer Goods sector. In 2009, US
consumers spent about $322 billion on clothing and footwear, a 3.6% decline from 2008. A cause in the decline was a
2.6% decrease in US gross domestic product from $12.88 trillion in 2009 to $13.22 trillion in 2008.
Also, US employment levels in apparel and footwear have been falling drastically, 76% since the mid-1990‟s to 2007.
The US Department of Labor expects the domestic apparel and footwear employment to drop 11% by 2016.
Catalysts for this decrease in domestic employment are the increased quotas, reduced tariffs, and more emerging free
trade and preferential-trade agreements. Many companies are choosing to outsource manufacturing jobs to low-cost
countries in Asia, Latin America, Africa, and the Caribbean to leverage labor arbitrage.
APPAREL INDUSTRY
The US apparel industry is large mature, and highly fragmented. The apparel
sold in the US is manufactured both domestically and internationally.
Apparel imports totaled $63.10 billion in 2009. Moving forward, it‟s
expected that apparel imports will continue to rise and subsequently apparel
exports will fall.
The US apparel market is divided into two segments: national brands and
other apparel. National brands, which are composed of about 10 sizeable
companies, account for approximately 16% of all US wholesaling apparel
sales. The other apparel segment accounts for 84% of US wholesaling
apparel sales and is primarily composed of small brands and private-label
goods. A breakdown of the major apparel companies is shown to the right.
MAJOR APPAREL COMPANIES
(Ranked by sales)
COMPANY
FY ENDING SALES (MIL. $)
Nike
May-10
19,014
V.F. Corp
Jan-10
7,220
Polo Ralph Lauren
Mar-10
4,979
Liz Claiborne
Jan-10
3,891
Jones Apparel Group
Dec-09
3,327
Hanesbrands
Jan-10
3,012
Philips-Van Heusen
Jan-10
2,399
Quicksilver
Jan-10
2,020
Warnaco
Oct-09
1,978
Timberland
Jan-10
1,590
Carter's Inc.
Dec-09
1,286
Wolverine
Jan-10
1,101
Oxford Industries
Jan-10
801
FOOTWEAR INDUSTRY
Similar to the apparel industry, the footwear industry is mature and highly fragmented. Footwear sales declined 3.6%
from $44 billion in 2008 to $42.4 billion in 2009. The footwear industry is global in nature as manufacturers source
products abroad and derive a large portion of revenues from overseas. Many companies are expanding to emerging
markets globally to counteract slow domestic growth. Also, many footwear companies are developing complementary
apparel and accessory lines to extend the reach of their brands.
INDUSTRY OUTLOOK
As the US becomes more “green” conscious, there is an expected move towards green. Companies are starting to
focus on sustainability in a wide range of activities from energy and transportation to packaging and its vendor and
community. Vendors fear that green production will drive up costs, but sustainability is a method of differentiation
and can be used as a competitive advantage.
Apparel for sports and activities-based entertainment is a category that is expected to outperform other discretionary
categories. Sports enthusiasts encompass a wide age range from baby boomers to young children. Many people want
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to maintain an active and healthy lifestyle and find reasons to purchase these products whether the reasons are health
or ego related.
CONSUMER SPENDING
The financial meltdown and ensuing recession snapped a nearly thirty-year long streak of positive growth in aggregate
consumption. Since 1980, job growth, lower savings, and easy access to credit allowed American consumers to spend
a greater amount than they had the previous year, even during tough economic times such as the dot com bubble
burst. The collapse of the housing and financial markets led to a tightening of credit and spike in unemployment,
preventing customers from maintaining their typical spending habits. Aggregate consumption dropped by 0.2% in
2008 and fell an additional 0.6% in 2009 to $9.23 trillion.
Moving forward the estimated 2011 aggregate consumption value is $9.61 trillion. The forecasted value for 2016 is
$10.8 trillion, a 2011-2016 CAGR of 2.3%. Research indicates that with expected job growth and normalizing credit
conditions, the long-term historical growth rate will re-emerge. The creation of additional jobs will result in higher
disposable income and increased purchases. Also, higher employment and a positive economic outlook will boost
consumer sentiment, which is expected to drive consumers to exercise their spending power, rather than saving for a
rainy day. A graph of consumer spending is show below. (IBISWorld)
S.W.O.T. ANALYSIS
STRENGTHS
 Strong brand equity – Nike is a global brand and its famous „Swoosh‟ is instantly recognizable.

Vertical integration – Nike‟s operations are vertically integrated with a presence in every segment of the
value chain from manufacturing down to sales.

Diverse product portfolio – Nike offers footwear, apparel, and accessories for a broad range of sports and
activities, including running, training, basketball, soccer, golf, baseball, football, and bicycling.

Endorsement deals with global sports icons– Nike sponsors athletes such as Kobe Bryant, LeBron James,
Wayne Rooney, and Rafael Nadal.
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WEAKNESSES
 High pension liabilities – The pension plan is the largest employee benefit obligation within Nike. In FY
2010 the unfunded pension liabilities for Nike reached $113 million, a 36.5% year over year increase.

The retail sector is price sensitive – Although Nike has its own retailer, Nike Town, much of its revenue is
derived from selling to retailers. It is hard to differentiate one sports retailer from another, thus margins tend
to be squeezed.
OPPORTUNITIES
 Leverage the association with the NFL to consolidate market share in the United States – The new
licensing agreement with the NFL provides Nike with the opportunity to increase brand exposure and
recognition.

Soccer market – Soccer is the most popular sport in the world and Nike can continue to drive revenue
growth by increasing its presence in the soccer apparel and footwear market.
THREATS
 Intense competition – Nike must compete with many domestic players in addition to a growing number of
cheaper imported footwear countries, specifically China.

Growing counterfeit goods market – The counterfeit market has been rapidly growing in recent years
primarily driven by the online market. Counterfeits not only drive down revenue, but also dilute the Nike
brand.

Emergence of Li Ning – As one of China‟s leading sports-apparel makers, Li Ning is expanding through
China threatening to overtake Nike‟s dominance in the market. Li Ning has signed a few notable athletes to
endorsement deals, including Shaquille O‟Neal of the Boston Celtics.
COMPARABLES ANALYSIS
In order to identify Nike‟s competitors, I researched companies that shared similar business risk and business
structure. I also searched for companies that had exposure to both the footwear and apparel markets. The four
companies I chose to use in my comparables analysis were Adidas AG, Polo Ralph Lauren Corp., Deckers Outdoor
Corp., and Under Armour, Inc. No one company has the same product mix as Nike; however, these companies
market and produce a similar blend of footwear, apparel, and equipment.
Valuation Metrics Used
For my comparables analysis I used four valuation metrics each weighted equally at 25%: EV/Revenue, EV/Gross
Profit, EV/EBITDA, and EV/OCF. The comparables model suggests an implied price of $102.23, an
undervaluation of 19.19%.
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ADIDAS AG (ADS) WEIGHT: 30%
“adidas AG is a Germany-based producer of sportswear and sports equipment.
The Company operates globally. adidas AG offers its products through three
main brands. The adidas brand covers footwear, apparel and hardware in two
segments: the Sport Performance segment develops modern products, focusing
on running, football, basketball, tennis and training, and the Sport Style segment
is aimed at fashion-conscious consumers. The Reebok brand covers sports and
lifestyle products in three segments: the Reebok segment offers footwear and apparel for men and women for sports
and street, as well as hardware, such as bags and balls; the Reebok-CCM Hockey segment provides hockey equipment
and apparel, and the Rockport segment offers dress, casual and outdoor footwear, and accessories. The TaylorMadeadidas Golf brand covers a range of golf clubs, accessories, footwear and apparel, marketed under the brand names
TaylorMade, adidas Golf and Ashworth.” (Reuters)
Adidas is Nike‟s best pure play competitor. Adidas‟s products cater to a wide range of sports and activities, similar to
Nike, and Adidas also has exposure to the equipment market. Adidas has a breadth of subsidiary businesses that
compete directly with Nike‟s subsidiaries, including TaylorMade, Ashworth, and Reebok. In comparison to Nike,
Adidas has a higher beta, a larger international presence and an exposure to the soccer market. I decided to weight
Adidas at 30% because it competes directly with Nike across so many product categories and thus is exposed to
similar business risk.
POLO RALPH LAUREN CORP. (RL) WEIGHT: 25%
“Polo Ralph Lauren Corporation is engaged in the design, marketing and
distribution of products, including men‟s, women‟s and children‟s apparel,
accessories, fragrances and home furnishings. The Company operates in three
segments: Wholesale, Retail and Licensing. Apparel products include
collections of men‟s, women‟s and children‟s clothing. Accessories include a
range of footwear, eyewear, watches, jewelry, hats, belts and leather goods,
including handbags and luggage. Home products include bedding and bath
products, furniture, fabric and wallpaper, paint, tabletop, and giftware. Fragrance products are sold under its
Romance, Polo, Lauren, Safari, Ralph and Black Label brands, among others. On December 31, 2009, in connection
with the transition of the Polo-branded apparel business in Asia-Pacific (excluding Japan) from a licensed to a wholly
owned operation, the Company acquired certain net assets from Dickson Concepts International Limited and
affiliates (Dickson).” (Reuters)
Although Ralph Lauren does not compete in the sports market, it offers a product line of footwear, apparel, and
accessories, similar to Nike. Ralph Lauren is a high-end retailer with a number of subsidiary brands. Ralph Lauren also
has a large international presence as it derived over 30% of revenues abroad and is continuing to expand globally.
Ralph Lauren and Nike also operate at similar net margins and debt to equity level. Since Ralph Lauren operates in
similar markets to Nike and is exposed to similar risk factors I chose to weight Ralph Lauren at 25%.
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DECKERS OUTDOORS CORP. (DECK) WEIGHT: 15%
“Deckers Outdoor Corporation is engaged in designing, producing,
marketing and brand managing of footwear and accessories. The
Company sells its products, including accessories, such as handbags,
headwear, packs and outerwear, through domestic retailers and international distributors and directly to the
consumers, both domestically and internationally, through its Websites, call centers, retail concept stores and retail
outlet stores. The Company markets its products under three brands: UGG, Teva and Simple. The Company acquired
100% of the ownership interest of Ahnu, Inc. in March 2009.” (Reuters)
Deckers produces footwear and accessories, but does not have exposure to the apparel market. I elected to use
Deckers as a comparable because Nike derives 54% of revenues from the footwear segment. Since Deckers does not
compete across all product lines I chose to weigh it less at 15%. Decker‟s has no debt and a gross margin similar to
Nike. Both companies face similar risks by operating in the consumer discretionary sector, although Deckers‟ beta is
significantly higher than Nike‟s beta.
UNDER ARMOUR, INC. (UA) WEIGHT: 30%
“Under Armour, Inc. (Under Armour) is engaged in developing, marketing and
distributing branded performance apparel, footwear and accessories for men,
women and youth. Its products are sold worldwide and are worn by athletes at all
levels, from youth to professional, on playing fields, as well as consumers with
active lifestyles. Its revenues are generated primarily from the wholesale distribution
of its products to national, regional, independent and specialty retailers. Under Armour‟s products are offered in over
20,000 retail stores worldwide. Most of its products are sold in North America. The Company‟s trademarks include
UNDER ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR and the Under Armour UA Logo. The
Company‟s product offerings consist of apparel, footwear and accessories for men, women and youth.” (Reuters)
Under Armour is a company that has realized tremendous growth recently, and is well positioned in the footwear,
apparel, and equipment segments. Under Armour competes with Nike across these segments and will also be a
competitor for the NFL market share in 2012 when Nike takes over the NFL‟s on field apparel rights. Currently,
Under Armour is the official supplier for the NFL Combine, a pre-draft showcase for college prospects. Due to the
competition across all the segments Nike operates in and similar profitability margins, I decided to weight Under
Armour at 30%.
DISCOUNTED CASH FLOW ANALYSIS
Throughout my discounted cash flow analysis, the percent of revenue method was used and each line item has been
projected out to the year 2020. My projections were based upon various qualitative and quantitative factors, including
company guidance, industry outlook, and analysts‟ opinions. Nike‟s free cash flows were discounted to obtain a net
present value, and derive an implied price. The DCF model suggests an implied price of $94.51, an undervaluation of
10.19%.
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BETA
To calculate Nike‟s beta, I ran a five-year monthly, three-year monthly, and two-year weekly regression of Nike‟s
returns against the total returns index of the S&P 500. The regressions yielded a beta of 0.91, 0.92, and 0.84,
respectively. I elected to use an average of the three regressions (0.89) as an estimate for my beta as it is in line with
several financial sources and seems appropriate for Nike given its size and market risk.
MARKET RISK PREMIUM
I elected to use a market risk premium of 6.00% instead of the 7.00% market risk premium UOIG typically uses for
valuation. University of Oregon Professor John Chalmers passed along an academic study that surveyed market risk
premiums used by professors and analysts in the United States. Of the 2,400 analysts surveyed, the average market
risk premium used was 5.10%. Another survey of 1,500 professors yielded an average market risk premium used of
6.00%. Based upon these academic findings, I decided a market risk premium of 6.00% would be appropriate for my
valuation of Nike.
REVENUES
In order to project revenues, I broke down Nike‟s total revenues into five operating segments: total developed
revenue, total developing revenue, global brand divisions, other businesses, and corporate revenue. In 2009 nearly all
segments experienced declining growth, however, with an improved industry outlook Nike is expected to regain levels
of positive growth.
Total Developed Revenue
Revenue derived from the United States, Western Europe, and Japan contributes to the total developed revenue
segment. Moving forward, management expects to see mid-to-high single digit growth in the developed regions.
North America is expected to grow the fastest, followed by Western Europe, and Japan. These three regions are
projected to realize growth between 8.00% and 9.00% in 2015, followed by a downward trend to 2.00% - 3.00%
growth in the terminal year.
Total Developing Revenue
The total developing revenue segment encompasses revenues generated from Central and Eastern Europe, Greater
China, and emerging markets. In 2010 the developing geographies markets delivered almost $5 billion in revenue for
the Nike Brand. Management anticipates that developing geographies will deliver $3.5 billion in incremental revenue
by 2015. To account for this projection I have forecasted emerging markets to grow fastest, followed by greater China
and Central and Eastern Europe. By 2015 all markets will be growing by 13.00% then trend down to a terminal
growth rate between 5.00% and 7.00%.
Other Businesses
Nike‟s other businesses, which includes Cole Haan, Converse, Hurley, Umbro, and NIKE Golf currently account for
about $2.5 billion in revenues. These brands are much less developed that the Nike Brand and leave room for
tremendous growth. I have projected revenues from other businesses to nearly double by 2015 (growing at 20.50%)
based upon management guidance and the expanded market presence of each subsidiary. Moving into the terminal
year I have trended down the other businesses forecasted growth to 7.00%.
Global Brand Divisions
Global Brand Divisions represents NIKE Brand licensing businesses that are not part of a geographic operating
segment and selling, general and administrative expenses that are centrally managed for the NIKE Brand. This
segment contributes a small fraction of overall revenue, but management has stated that they expect this segment to
grow in a similar fashion to the total developing revenues segment. For this reason I have projected global brand
12
Nike, Inc.
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divisions‟ revenues to grow steadily until reaching a growth rate of 12.00% in 2015 and trending down to a 4.00%
growth rate in the terminal year.
Corporate Revenue
Corporate Revenue was not projected as it has been minimal and unpredictable historically.
COST OF REVENUE
Nike‟s cost of revenue has been decreasing as a percentage of revenue from 56.14% in 2007 to 53.72% in 2010.
Moving forward I have projected this trend to continue because as Nike gets larger in size, I anticipate the gross
margin to grow simultaneously, with the only exception between years 2011 and 2012. During these years
management believes Nike will suffer from macroeconomic factors including changes in currency exchange rates and
rising costs for product input costs. I have projected cost of revenue to stay constant at 54.00% from 2011 to 2012,
then begin to decrease a as percentage of revenue down to 52.00% in the terminal year.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expenses have historically fluctuated between 30.00% - 33.00% of revenues. I have
projected selling and administrative expenses to increase as a percentage of revenue from 32.50% in 2011 to 33.50%
in 2015. The increase in the expense is due to additional marketing costs incurred through the recent NFL agreement
and the development of the Umbro Brand abroad. As Nike expands operations internationally I also anticipate this
expense will increase as a percentage of revenue. I have projected the expense to decrease as a percentage of revenue
from 33.50% in to 32.25% in the terminal year as Nike achieves economies of scale.
TAX RATE
Nike‟s effective tax rate increased to 25.51% for the first two quarters of 2011. The increased tax rate was driven by
an increase in the percentage of pre-tax income derived from operations in the United States. The statutory tax rate in
the United States is generally higher than the tax rate on international operations. I have projected the tax rate to
decrease incrementally by 0.10% from 24.90% to 24.00% in the terminal year as Nike begins to derive a larger
percentage of revenue from overseas.
NET WORKING CAPITAL
I have projected Nike‟s current assets and current liabilities to reach its historical current ratio of 3. Current assets
trend down from 52.00% of revenue in 2011 to 50.00% of revenue in the terminal year. Current liabilities trend
upwards from 16.00% of revenue in 2011 to 18.25% of revenue in 2015, before incrementally declining to 16.75% of
revenue in the terminal year. Current liabilities increases as a percentage of revenue over the next five years because
management expects accounts payable to increase as the subsidiary businesses expand and the NFL licensing contract
is implemented.
ACQUISITIONS
Nike has been fairly active in pursuing inorganic growth and management has stated a commitment to continue to
source new acquisitions. Moving forward, management has not given any guidance regarding a timetable for future
acquisitions. In order to account for future acquisitions I have projected acquisitions as 1.00% of revenue throughout
the entirety of the DCF.
CAPITAL EXPENDITURES
Since 2007, capital expenditures have been fluctuating between 1.76% and 2.41% of revenues. I have projected capital
expenditures at 2.20% of revenue in 2011 and have trended the line item down to 2.00% in the terminal year to arrive
at a percentage of revenue that is in line with historical averages.
13
Nike, Inc.
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RECOMMENDATION
I was initially drawn to Nike because of its strong growth potential both domestically and internationally. Nike
maintains strong brand equity and is a global leader in the athletic footwear, apparel, and equipment markets. Also,
Nike‟s market presence is anticipated to increase with the upcoming NFL licensing agreement.
My comparables analysis suggests a price of $102.23 while my DCF analysis suggests a price of $94.51. I arrived at an
implied price of $98.37, a 14.69% undervaluation given the current price of $85.77, based upon a 50/50 weighting of
the DCF and comparables analysis.
Two issues that I anticipate arising are that we are overweight in consumer goods and recently purchased Deckers
(DECK), a consumer discretionary company that operates in the footwear segment. I believe consumer discretionary
is not a bad place to be overweight in as consumer spending is expected to experience rapid growth. As we come out
of the recession people will be more willing to pay for products that Nike offers as disposable income increases.
Although Nike and Deckers both operate in the footwear market, Nike is a much larger company. Nike has a bigger
international presence and diversified product offerings. Whereas Deckers derives most of its income from the UGG
Brand, Nike is a leading producer of apparel and sporting equipment. Finally, Nike differs in that its beta is much
lower than Deckers (0.89 compared to 1.64) and has issued a dividend every quarter since 1984 (dividend yield of
1.44%).
Given these reasons I am recommending a BUY in the Tall Firs and Svigals‟ Portfolios for Nike.
Analysis
Comparables Price
DCF Price
Weighted Target Price
Current Price
Undervalued
Weighting
Price
50.00%
50.00%
$ 102.23
$ 94.51
$
$
98.37
85.77
14.69%
14
Nike, Inc.
university of oregon investment group
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APPENDIX 1 – COMPARABLES ANALYSIS
The University of Oregon Investment Group
($ in millions, except per share data)
Stock Characteristics
Current Price
50 Day Moving Avg.
200 Day Moving Avg.
Beta
Size
ST Debt
LT Debt
Cash and Cash Equiv.
Diluted Share Count
Market Cap
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Debt/Equity (MRQ)
Debt/EBITDA (LTM)
EBITDA/Interest Expense (LTM)
Operating Results
Revenue (LTM)
Gross Profit (LTM)
EBITDA (LTM)
OCF (LTM)
Valuation
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/OCF
Nike
NKE
Max
126.46
109.16
97.13
1.64
Min
63.64
55.71
46.75
0.89
362.56
0.00
1,837.05
0.00
1,768.00
133.94
487.60
34.05
41,821.45 2,166.69
40,391.45 1,992.75
30.00%
25.00%
Adidas AG Ralph Lauren
ADS
RL
15.00%
Deckers
DECK
30.00%
Under Armour
UA
Avg.
82.98
75.48
67.24
1.37
Median
77.37
71.51
62.15
1.52
85.77
84.63
80.57
0.89
66.61
63.59
61.94
1.63
126.46
109.16
97.13
1.51
86.47
79.44
62.35
1.64
68.96
55.71
46.75
1.53
83.77
410.10
623.27
153.23
12,875.00
12,661.83
4.03
142.78
447.07
74.63
7,967.14
7,721.25
132.00
338.00
1,768.00
487.60
41,821.45
40,391.45
362.56
1,837.05
769.59
209.22
13,935.52
15,002.97
0.00
275.10
643.40
98.10
12,405.73
12,037.43
0.00
0.00
250.74
39.23
3,392.05
3,141.31
8.07
10.47
133.94
51.17
3,528.55
3,405.08
0.61
0.23
0.25
0.15
0.43
0.07
0.08
0.04
0.49
0.13
0.15
0.09
0.48
0.12
0.15
0.08
0.47
0.14
0.16
0.10
0.48
0.07
0.08
0.04
0.61
0.17
0.20
0.11
0.48
0.23
0.25
0.15
0.50
0.11
0.14
0.06
0.13
1.50
753.02
0.00
0.00
6.31
0.03
0.32
328.08
0.01
0.09
311.08
0.01
0.11
337.42
0.13
1.50
6.31
0.02
0.25
311.08
0.00
0.00
753.02
0.00
0.08
232.56
19,826.90
9,250.80
3,104.30
2,432.67
918.85
443.04
132.08
92.66
7,337.90
3,581.30
985.17
931.47
3,387.04
1,943.29
658.05
806.48
19,826.90
9,250.80
3,104.30
2,432.67
15,522.61
7,418.29
1,223.80
1,176.63
5,389.50
3,297.40
1,090.20
806.48
918.85
443.04
225.91
148.91
984.98
489.07
134.74
92.66
2.40 x
4.67 x
16.11 x
21.75 x
2.04 x
4.37 x
13.01 x
16.60 x
0.97 x
2.02 x
12.26 x
12.75 x
2.23 x
3.65 x
11.04 x
14.93 x
3.42 x
7.09 x
13.91 x
21.10 x
3.46 x
6.96 x
25.27 x
36.75 x
Metric
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/OCF
Price Target
Current Price
Undervalued
$
$
$
$
Implied Price
100.45
91.56
105.47
111.42
Weight
25.00%
25.00%
25.00%
25.00%
$
$
102.23
85.77
19.19%
15
Nike, Inc.
university of oregon investment group
http://uoinvestmentgroup.org
APPENDIX 2 – DISCOUNTED CASH FLOWS ANALYSIS
The University of Oregon Investment Group
($ in millions, except per share data)
Total Company Revenue
% Y/Y Growth
Cost of Revenue
% Revenue
Gross Profit
Gross Margin
Operating Expenses
Selling and Administrative Expenses
% Revenue
Restructuring Charges
% Revenue
Good Will Impairment
% Revenue
Intangible and Other Asset Impairment
% Revenue
Total Operating Expenses
% Revenue
EBIT
% Revenue
Interest Expense (Income)
% Revenue
Other (Income) Expenses
% Revenue
Pre-tax Income
% Revenue
Less Taxes (Benefit)
Tax Rate
Net Income
Net Margin
Add Back Depreciation
% Revenue
Add Back Ammoritization
% Revenue
Add Back: (1-Tr)*Interest Expense
% Revenue
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Net Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flows
Discounted Unlevered Free Cash Flows
2007A
16325.90
9165.40
56.14%
7160.50
43.86%
5028.70
30.80%
0.00
0.00%
0.00
0.00%
0.00
0.00%
5028.70
30.80%
2131.80
13.06%
-67.20
-0.41%
-0.90
-0.01%
2199.90
13.47%
708.40
32.20%
1491.50
9.14%
269.70
1.65%
0.50
0.00%
-45.56
-0.28%
1716.14
10.51%
8076.50
49.47%
2584.00
15.83%
5492.50
33.64%
313.50
1.92%
0.00
0.00%
1402.64
2008A
18627.00
14.09%
10239.60
54.97%
8387.40
45.03%
2009A
19176.10
2.95%
10571.70
55.13%
8604.40
44.87%
2010A
19014.00
-0.85%
10213.60
53.72%
8800.40
46.28%
2011Q1-2A
10017.00
8.83%
5390.00
53.81%
4627.00
46.19%
0.5
2011Q3-4E
10450.78
6.53%
5662.60
54.18%
4788.18
45.82%
5953.70
31.96%
0.00
0.00%
0.00
0.00%
0.00
0.00%
5953.70
31.96%
2433.70
13.07%
-77.10
-0.41%
7.90
0.04%
2502.90
13.44%
619.50
24.75%
1883.40
10.11%
303.60
1.63%
17.90
0.10%
-58.02
-0.31%
2146.88
11.53%
8839.30
47.45%
3321.50
17.83%
5517.80
29.62%
25.30
449.20
2.41%
571.10
3.07%
1101.28
6149.60
32.07%
195.00
1.02%
199.30
1.04%
202.00
1.05%
6745.90
35.18%
1858.50
9.69%
-9.50
-0.05%
-88.50
-0.46%
1956.50
10.20%
469.80
24.01%
1486.70
7.75%
335.00
1.75%
48.30
0.25%
-7.22
-0.04%
1862.78
9.71%
9734.00
50.76%
3277.00
17.09%
6457.00
33.67%
939.20
455.70
2.38%
0.00
0.00%
467.88
6326.40
33.27%
0.00
0.00%
0.00
0.00%
0.00
0.00%
6326.40
33.27%
2474.00
13.01%
6.30
0.03%
-49.20
-0.26%
2516.90
13.24%
610.20
24.24%
1906.70
10.03%
323.70
1.70%
71.80
0.38%
4.77
0.03%
2306.97
12.13%
10959.20
57.64%
3364.20
17.69%
7595.00
39.94%
1138.00
335.10
1.76%
0.00
0.00%
833.87
3284.00
32.78%
0.00
0.00%
0.00
0.00%
0.00
0.00%
3284.00
32.78%
1343.00
13.41%
0.00
0.00%
-21.00
-0.21%
1364.00
13.62%
348.00
25.51%
1016.00
10.14%
161.00
1.61%
14.00
0.14%
0.00
0.00%
1191.00
11.89%
10916.00
3368.03
32.23%
0.00
0.00%
0.00
0.00%
0.00
0.00%
3368.03
32.23%
1420.15
13.59%
0.00
0.00%
0.00
0.00%
1420.15
13.59%
345.25
24.31%
1074.90
10.29%
248.36
2.38%
37.17
0.36%
0.00
0.00%
1360.42
13.02%
11535.38
3248.00
3549.35
7668.00
76.55%
73.00
191.00
1.91%
0.00
0.00%
927.00
7986.03
76.42%
318.03
259.29
2.48%
104.51
1.00%
678.59
650.23
2011 A+E
20467.78
7.65%
11052.60
54.00%
9415.18
46.00%
6652.03
32.50%
0.00
0.00%
0.00
0.00%
0.00
0.00%
6652.03
32.50%
2763.15
13.50%
0.00
0.00%
-21.00
0.00%
2784.15
13.60%
693.25
24.90%
2090.90
10.22%
409.36
2.00%
51.17
0.25%
0.00
0.00%
2500.25
12.22%
11535.38
56.36%
3549.35
17.34%
7986.03
39.02%
391.03
450.29
2.20%
104.51
0.51%
1554.42
1.5
2012 E
22183.42
8.38%
11979.05
54.00%
10204.37
46.00%
2.5
2013 E
24285.10
9.47%
13053.24
53.75%
11231.86
46.25%
3.5
2014 E
26878.43
10.68%
14379.96
53.50%
12498.47
46.50%
4.5
2015 E
30029.62
11.72%
15990.77
53.25%
14038.85
46.75%
5.5
2016 E
33092.30
10.20%
17538.92
53.00%
15553.38
47.00%
6.5
2017 E
36072.04
9.00%
19028.00
52.75%
17044.04
47.25%
7.5
2018 E
38857.68
7.72%
20400.28
52.50%
18457.40
47.50%
8.5
2019 E
41293.45
6.27%
21575.83
52.25%
19717.62
47.75%
9.5
2020 E
43264.58
4.77%
22497.58
52.00%
20767.00
48.00%
7265.07
32.75%
0.00
0.00%
0.00
0.00%
0.00
0.00%
7265.07
32.75%
2939.30
13.25%
0.00
0.00%
0.00
0.00%
2939.30
13.25%
728.95
24.80%
2210.36
9.96%
488.04
2.20%
55.46
0.25%
0.00
0.00%
2698.39
12.16%
11535.38
52.00%
3549.35
16.00%
7986.03
36.00%
0.00
488.04
2.20%
221.83
1.00%
1988.52
1749.43
8014.08
33.00%
0.00
0.00%
0.00
0.00%
0.00
0.00%
8014.08
33.00%
3217.78
13.25%
0.00
0.00%
0.00
0.00%
3217.78
13.25%
794.79
24.70%
2422.99
9.98%
582.84
2.40%
60.71
0.25%
0.00
0.00%
3005.83
12.38%
12506.83
51.50%
4067.75
16.75%
8439.07
34.75%
453.04
534.27
2.20%
242.85
1.00%
1775.66
1434.29
8937.08
33.25%
0.00
0.00%
0.00
0.00%
0.00
0.00%
8937.08
33.25%
3561.39
13.25%
0.00
0.00%
0.00
0.00%
3561.39
13.25%
876.10
24.60%
2685.29
9.99%
698.84
2.60%
67.20
0.25%
0.00
0.00%
3384.13
12.59%
13708.00
51.00%
4703.72
17.50%
9004.27
33.50%
565.20
577.89
2.15%
268.78
1.00%
1972.26
1462.69
10059.92
33.50%
0.00
0.00%
0.00
0.00%
0.00
0.00%
10059.92
33.50%
3978.92
13.25%
0.00
0.00%
0.00
0.00%
3978.92
13.25%
974.84
24.50%
3004.09
10.00%
840.83
2.80%
75.07
0.25%
0.00
0.00%
3844.92
12.80%
15164.96
50.50%
5480.41
18.25%
9684.55
32.25%
680.28
645.64
2.15%
300.30
1.00%
2218.71
1510.77
11003.19
33.25%
0.00
0.00%
0.00
0.00%
0.00
0.00%
11003.19
33.25%
4550.19
13.75%
0.00
0.00%
0.00
0.00%
4550.19
13.75%
1110.25
24.40%
3439.94
10.40%
860.40
2.60%
82.73
0.25%
0.00
0.00%
4300.34
13.00%
16546.15
50.00%
5873.88
17.75%
10672.27
32.25%
987.71
694.94
2.10%
330.92
1.00%
2286.77
1429.65
11903.77
33.00%
0.00
0.00%
0.00
0.00%
0.00
0.00%
11903.77
33.00%
5140.27
14.25%
0.00
0.00%
0.00
0.00%
5140.27
14.25%
1249.08
24.30%
3891.18
10.79%
901.80
2.50%
90.18
0.25%
0.00
0.00%
4792.98
13.29%
18036.02
50.00%
6312.61
17.50%
11723.41
32.50%
1051.15
757.51
2.10%
360.72
1.00%
2623.60
1505.97
12725.89
32.75%
0.00
0.00%
0.00
0.00%
0.00
0.00%
12725.89
32.75%
5731.51
14.75%
0.00
0.00%
0.00
0.00%
5731.51
14.75%
1387.02
24.20%
4344.48
11.18%
932.58
2.40%
97.14
0.25%
0.00
0.00%
5277.07
13.58%
19428.84
50.00%
6702.95
17.25%
12725.89
32.75%
1002.48
796.58
2.05%
388.58
1.00%
3089.43
1628.20
13420.37
32.50%
0.00
0.00%
0.00
0.00%
0.00
0.00%
13420.37
32.50%
6297.25
15.25%
0.00
0.00%
0.00
0.00%
6297.25
15.25%
1517.64
24.10%
4779.61
11.57%
949.75
2.30%
103.23
0.25%
0.00
0.00%
5729.36
13.87%
20646.72
50.00%
7019.89
17.00%
13626.84
33.00%
900.95
846.52
2.05%
412.93
1.00%
3568.97
1726.96
13952.83
32.25%
0.00
0.00%
0.00
0.00%
0.00
0.00%
13952.83
32.25%
6814.17
15.75%
0.00
0.00%
0.00
0.00%
6814.17
15.75%
1635.40
24.00%
5178.77
11.97%
951.82
2.20%
108.16
0.25%
0.00
0.00%
6130.59
14.17%
21632.29
50.00%
7246.82
16.75%
14385.47
33.25%
758.64
865.29
2.00%
432.65
1.00%
4074.02
1809.98
16
Nike, Inc.
university of oregon investment group
http://uoinvestmentgroup.org
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Assumptions for Discounted Free Cash Flows Model
Tax Rate
Risk-Free Rate
Beta
24.00% Terminal Growth Rate
3.62% Terminal Value
0.89 PV of Terminal Value
Market Risk Premium
% Equity
% Debt
Cost of Debt
CAPM
WACC
6.00%
99.19%
0.81%
5.20%
8.96%
8.92%
3.00%
70,937.40
31,515.67
$
$
Sum of PV Free Cash Flows
Firm Value
LT Debt
Cash
Equity Value
Diluted Share Count
$
$
$
$
$
14,908.17
46,423.85
342.00
1,768.00
46,081.85
487.60
Implied Price
Current Price
Undervalued
$
$
94.51
85.77
10.19%
APPENDIX 4 – REVENUE PROJECTIONS
The University of Oregon Investment Group
($ in millions, except per share data)
Total Revenue
Y/Y Growth
North America
% Growth
% Revenue
Western Europe
% Growth
% Revenue
Japan
% Growth
% Revenue
Total Developed Revenue
% Growth
% Revenue
Central and Eastern Europe
% Growth
% Revenue
Greater China
% Growth
% Revenue
Emerging Markets
% Growth
% Revenue
Total Developing Revenue
% Growth
% Revenue
Global Brand Divisions
% Growth
% Revenue
Other Business
% Growth
% Revenue
Corporate
% Growth
% Revenue
2008
18,627.00
2009
19,176.00
2.95%
2010
19,014.00
-0.84%
2011
20,467.78
7.65%
2012
22,183.42
8.38%
2013
24,285.10
9.47%
2014
26,878.43
10.68%
2015
30,029.62
11.72%
2016
33,092.30
10.20%
2017
36,072.04
9.00%
2018
38,857.68
7.72%
2019
41,293.45
6.27%
2020
43,264.58
4.77%
6,661.00
6,778.00
1.76%
35.35%
4,139.00
-4.19%
21.58%
926.00
12.65%
4.83%
11,843.00
0.34%
61.76%
6,696.00
-1.21%
35.22%
3,892.00
-5.97%
20.47%
882.00
-4.75%
4.64%
11,470.00
-3.15%
60.32%
7,114.50
6.25%
34.76%
4,096.33
5.25%
20.01%
928.31
5.25%
4.54%
12,139.14
5.83%
59.31%
7,594.73
6.75%
34.24%
4,331.87
5.75%
19.53%
981.68
5.75%
4.43%
12,908.28
6.34%
58.19%
8,164.33
7.50%
33.62%
4,613.44
6.50%
19.00%
1,045.49
6.50%
4.31%
13,823.27
7.09%
56.92%
8,837.89
8.25%
32.88%
4,947.91
7.25%
18.41%
1,121.29
7.25%
4.17%
14,907.10
7.84%
55.46%
9,633.30
9.00%
32.08%
5,343.75
8.00%
17.79%
1,210.99
8.00%
4.03%
16,188.04
8.59%
53.91%
10,500.30
9.00%
31.73%
5,717.81
7.00%
17.28%
1,295.76
7.00%
3.92%
17,513.87
8.19%
52.92%
11,340.32
8.00%
31.44%
6,118.06
7.00%
16.96%
1,386.47
7.00%
3.84%
18,844.85
7.60%
52.24%
12,134.14
7.00%
31.23%
6,485.14
6.00%
16.69%
1,469.65
6.00%
3.78%
20,088.94
6.60%
51.70%
12,862.19
6.00%
31.15%
6,744.55
4.00%
16.33%
1,543.14
5.00%
3.74%
21,149.88
5.28%
51.22%
13,376.68
4.00%
30.92%
6,879.44
2.00%
15.90%
1,589.43
3.00%
3.67%
21,845.55
3.29%
50.49%
1,373.00
4.89%
7.16%
1,743.00
28.73%
9.09%
1,702.00
4.42%
8.88%
4,818.00
12.23%
25.13%
1,150.00
-16.24%
6.05%
1,742.00
-0.06%
9.16%
2,042.00
19.98%
10.74%
4,934.00
2.41%
25.95%
1,265.00
10.00%
6.18%
1,924.91
10.50%
9.40%
2,266.62
11.00%
11.07%
5,456.53
10.59%
26.66%
1,400.99
10.75%
6.32%
2,131.84
10.75%
9.61%
2,527.28
11.50%
11.39%
6,060.11
11.06%
27.32%
1,562.10
11.50%
6.43%
2,377.00
11.50%
9.79%
2,830.56
12.00%
11.66%
6,769.66
11.71%
27.88%
1,753.46
12.25%
6.52%
2,668.18
12.25%
9.93%
3,184.37
12.50%
11.85%
7,606.01
12.35%
28.30%
1,981.41
13.00%
6.60%
3,015.05
13.00%
10.04%
3,598.34
13.00%
11.98%
8,594.80
13.00%
28.62%
2,179.55
10.00%
6.59%
3,361.78
11.50%
10.16%
4,012.15
11.50%
12.12%
9,553.48
11.15%
28.87%
2,375.71
9.00%
6.59%
3,697.95
10.00%
10.25%
4,413.37
10.00%
12.23%
10,487.03
9.77%
29.07%
2,565.76
8.00%
6.60%
4,030.77
9.00%
10.37%
4,766.44
8.00%
12.27%
11,362.97
8.35%
29.24%
2,745.37
7.00%
6.65%
4,353.23
8.00%
10.54%
5,052.42
6.00%
12.24%
12,151.02
6.94%
29.43%
2,910.09
6.00%
6.73%
4,657.96
7.00%
10.77%
5,305.04
5.00%
12.26%
12,873.09
5.94%
29.75%
96.00
-18.64%
0.50%
105.00
9.38%
0.55%
115.50
10.00%
0.56%
127.63
10.50%
0.58%
141.67
11.00%
0.58%
157.96
11.50%
0.59%
176.91
12.00%
0.59%
194.60
10.00%
0.59%
210.17
8.00%
0.58%
222.78
6.00%
0.57%
233.92
5.00%
0.57%
243.28
4.00%
0.56%
2,419.00
0.25%
12.61%
2,529.00
4.55%
13.30%
2,756.61
9.00%
13.47%
3,087.40
12.00%
13.92%
3,550.51
15.00%
14.62%
4,207.36
18.50%
15.65%
5,069.87
20.50%
16.88%
5,830.35
15.00%
17.62%
6,529.99
12.00%
18.10%
7,182.99
10.00%
18.49%
7,757.63
8.00%
18.79%
8,300.66
7.00%
19.19%
0.00
0.00%
0.00%
-24.00
0.00%
-0.13%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
0.00
0.00%
0.00%
1.00
0.00%
0.00%
2.00
0.00%
0.00%
35.76%
4,320.00
23.19%
822.00
4.41%
11,803.00
1,309.00
7.03%
1,354.00
7.27%
1,630.00
8.75%
4,293.00
23.05%
118.00
0.63%
2,413.00
12.95%
0.00
0.00%
17
Nike, Inc.
university of oregon investment group
http://uoinvestmentgroup.org
APPENDIX 5 – BETA SENSITIVITY ANALYSIS
Beta
1.33
1.22
1.11
1.00
0.89
0.78
0.67
0.56
0.45
St. DeviationImplied Price Under (Over) Valued
2.00
82.12
-4.26%
1.50
85.14
-0.73%
1.00
88.73
3.45%
0.50
93.05
8.49%
0.00
98.37
14.69%
-0.50
105.04
22.47%
-1.00
113.64
32.49%
-1.50
125.15
45.91%
-2.00
141.30
64.74%
APPENDIX 6 – SOURCES












Nike‟s 10-K, 10-Q, and Conference Call
Comparables‟ 10-K and 10-Q
Google Finance
Yahoo! Finance
Standard & Poors NetAdvantage
Social Science Research Network
IBIS World
FactSet
Fast Company Magazine
Fortune Magazine
Forbes Magazine
SEC
18