As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently on our screens, Nike Inc (NKE).
ProfileNike is the largest athletic footwear and apparel brand in the world. Key categories include basketball, running, and football (soccer). Footwear generates about two thirds of its sales. Its brands include Nike, Jordan (premium athletic footwear and clothing), and Converse (casual footwear). Nike sells products worldwide through company-owned stores, franchised stores, and third-party retailers. The firm also operates e-commerce platforms in more than 40 countries. Nearly all its production is outsourced to contract manufacturers in more than 30 countries. Nike was founded in 1964 and is based in Beaverton, Oregon.
Recent PerformanceOver the past twelve months the share price is down 22.56%.
Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 128.52 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 87.47 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 25.50 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 112.96 billionNet DebtNet Debt = Total Debt – Total Cash = 1.53 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 111.43 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $74.34
Conclusion
Based on the DCF valuation, the stock is undervalued. The DCF value of $74.34 share is lower than the current market price of $82.50. The Margin of Safety is -10.98%.More By This Author:Bristol-Myers Squibb Co: Is It A Buy?American Express Co. DCF Valuation: Is The Stock Undervalued?McDonald’s Corp Valuation: Is The Stock Undervalued?
