nike common stock valuation - may 24, 2010 nike common stock valuation as of may 24, 2010 by...

Nike Common Stock Valuation - May 24, 2010

NikeNikeCommon Stock Common Stock ValuationValuation

As of May 24, 2010

By Valentyn Khokhlov, MBA


PurposePurpose

• The fair price is defined as the price having the same multiple to an underlying factor as the average price for the group of the comparable companies.

• The valuation performed as of May 24, 2010.• The underlying factors considered are EBITDA,

revenue, net earnings and book value of assets.• The comparable companies are the leading public

corporations in the textile/footwear industry.

The purpose of this valuation is to assess the fair price of Nike common stock and check if the stock currently is over- or under-priced.


Executive SummaryExecutive Summary

• Nike shares seem to be overpriced relative to comparable companies using all the multiples but the P/E ratio.

• Fair price should be around $57 if valued using EV/EBITDA, EV/Sales and M/B ratios.

• Nike shares are almost fairly priced when using the P/E ratio: market price is $72, and the P/E multiple valuation is about $68.


Valuation SummaryValuation Summary

EV / EBITDA EBITDA Multiple Price Multiple EV Pricecurrent 2,888 11.06 $72.91 8.90 25,702 $60.06trailing 2,810 11.37 $72.91 8.59 24,141 $56.85regression 2,888 11.06 $72.91 8.41 24,282 $57.14

EV / Revenue Revenue Multiple Price Multiple EV Pricecurrent 19,176 1.67 $72.91 1.25 23,991 $56.54trailing 18,650 1.71 $72.91 1.20 22,457 $53.38

P / E Earnings Multiple Price Multiple MarketCap Pricecurrent 1,487 23.82 $72.91 22.33 33,205 $68.36trailing 1,730 20.47 $72.91 18.87 32,646 $67.21

M / B Assets Multiple Price Multiple MarketCap Pricecurrent 13,250 2.67 $72.91 2.12 28,076 $57.81

ValuatedActual

values in these columns are in USD millions


Market DataMarket Data


Comparable CompaniesComparable Companies

• Adidas (ADS:GR)• Skechers (SKX)• Deckers (DECK)• Puma (PUM:GR)• Timberland (TBL)• Coach Inc. (COH)• VF Corporation (VFC)• CROCS Inc. (CROX)• Steven Madden (SHOO)• Lacrosse Footwear (BOOT)• Phoenix Footwear Group (PXG)

Note: for some multiples a smaller group of top peer companies (shown in bold) was analyzed to derive an alternative multiple.


Trailing ValuesTrailing Values

Company Ticker Revenue EBITDA Net Profit EV Market Cap Shares Share PriceNike NKE 18,650 2,810 1,730 31,940 35,410 485.7 72.91Adidas ADS:GR 9,006 8,255 209.2 € 39.46Skechers SKX 1,590 170 103 1,390 1,700 47.4 35.84Deckers DECK 835 204 122 1,370 1,720 12.9 133.7Puma PUM:GR 2,941 3,314 15.1 € 219.50Timberland TBL 1,310 127 67 792 1,030 53.6 19.22Coach Inc. COH 3,430 1,180 685 10,840 11,730 305.1 38.43VF Corporation VFC 7,240 1,100 524 9,050 8,580 110.1 77.89CROCS Inc. CROX 678 63 (14) 744 794 85.79 9.26Steven Madden SHOO 528 104 59 805 892 27.58 32.34Lacrosse Footwear BOOT 147 15 8 103 122 6.4 19.1Phoenix Footwear GroupPXG 20 (6) (5) 7 4 8.17 0.5

In millions, except for share price. Values in EUR for Adidas and Puma, and in USD for other companies.

• The trailing (TTM) values, as well as EV and market capitalization are used as per Yahoo! Finance, http://finance.yahoo.com.

• EV for Adidas and Puma, which aren’t listed on Yahoo! Finance, are as per http://www.infinancials.com/en/financial%20ratio,adidas%20AG,30045ED.html, converted into EUR using 1.2488 USD/EUR rate.

• Market capitalization for Adidas and Puma are calculated using the current market price and the amount of shares outstanding as per the last annual report.

http://finance.yahoo.com/

http://www.infinancials.com/en/financial%20ratio,adidas%20AG,30045ED.html


Current ValuesCurrent ValuesIn millions, except for share price. Values in EUR for Adidas and Puma, and in USD for other companies.

• The current values, i.e. values as per the last annual report, are taken from the Bloomberg Business Week, http://investing.businessweek.com/businessweek/.

• EBITDA is estimated using the EBITDA to sales ratio.

Company Ticker Revenue EBITDA EBITDA % Net Profit Assets Shares Share PriceNike NKE 19,176 2,888 15.06% 1,487 13,250 395.7 $72.91Adidas ADS:GR 10,381 978 9.42% 245 8,875 209.2 € 39.46Skechers SKX 1,436 154 10.71% 55 996 35.8 $35.84Deckers DECK 813 198 24.40% 117 599 12.9 $133.70Puma PUM:GR 2,461 249 10.11% 128 2,014 15.1 € 219.50Timberland TBL 1,286 125 9.70% 57 860 42.7 $19.22Coach Inc. COH 3,231 1,113 34.44% 623 2,564 305.1 $38.43VF Corporation VFC 7,220 1,094 15.15% 461 6,471 110.1 $77.89CROCS Inc. CROX 646 60 9.35% (42) 410 85.8 $9.22Steven Madden SHOO 504 99 19.62% 50 327 27.5 $32.70Lacrosse Footwear BOOT 139 14 10.23% 6 89 6.4 $19.25Phoenix Footwear GroupPXG 20 (6) -31.79% (7) 15 8.2 $0.50

http://investing.businessweek.com/businessweek/




Multiples ValuationMultiples Valuation


Current EV/EBITDACurrent EV/EBITDA

Company Ticker EV EBITDA EV/EBITDA EV EV/EBITDAAdidas ADS:GR 9,006 978 9.21 9.21Skechers SKX 1,390 154 9.04Deckers DECK 1,370 198 6.90Puma PUM:GR 2,941 249 11.82 11.82Timberland TBL 792 125 6.35Coach Inc. COH 10,840 1,113 9.74 9.74VF Corporation VFC 9,050 1,094 8.27 8.27CROCS Inc. CROX 744 60 12.32Steven Madden SHOO 805 99 8.15Lacrosse Footwear BOOT 103 14 7.21Phoenix Footwear GroupPXG 7 (6) -1.06Nike NKE 25,702 2,888 8.90 28,191 9.76

average 8.90 9.76median 8.65 9.48std.deviation 1.98 1.50std.error of the mean 0.63 0.7595% confidence for the mean 7.67 10.1390% confidence for the mean 7.87 9.93

full peer group top peers


Trailing EV/EBITDATrailing EV/EBITDA


Company Ticker EV EBITDA EV/EBITDA EV EV/EBITDAAdidas ADS:GR 9,006 978 9.21 9.21Skechers SKX 1,390 170 8.19Deckers DECK 1,370 204 6.72Puma PUM:GR 2,941 249 11.82 11.82Timberland TBL 792 127 6.25Coach Inc. COH 10,840 1,180 9.19 9.19VF Corporation VFC 9,050 1,100 8.23 8.23CROCS Inc. CROX 744 63 11.74Steven Madden SHOO 805 104 7.77Lacrosse Footwear BOOT 103 15 6.80Phoenix Footwear GroupPXG 7 (6) -1.05Nike NKE 24,141 2,810 8.59 27,007 9.61



Current EV/RevenueCurrent EV/Revenue


Company Ticker EV Revenue EV/Sales EV EV/SalesAdidas ADS:GR 9,006 10,381 0.87 0.87Skechers SKX 1,390 1,436 0.97Deckers DECK 1,370 813 1.68Puma PUM:GR 2,941 2,461 1.19 1.19Timberland TBL 792 1,286 0.62Coach Inc. COH 10,840 3,231 3.36 3.36VF Corporation VFC 9,050 7,220 1.25 1.25CROCS Inc. CROX 744 646 1.15Steven Madden SHOO 805 504 1.60Lacrosse Footwear BOOT 103 139 0.74Phoenix Footwear Group PXG 7 20 0.34Nike NKE 23,991 19,176 1.25 23,475 1.22



Trailing EV/RevenueTrailing EV/Revenue


Company Ticker EV Revenue EV/Sales EV EV/SalesAdidas ADS:GR 9,006 10,381 0.87 0.87Skechers SKX 1,390 1,590 0.87Deckers DECK 1,370 835 1.64Puma PUM:GR 2,941 2,461 1.19 1.19Timberland TBL 792 1,310 0.60Coach Inc. COH 10,840 3,430 3.16 3.16VF Corporation VFC 9,050 7,240 1.25 1.25CROCS Inc. CROX 744 678 1.10Steven Madden SHOO 805 528 1.52Lacrosse Footwear BOOT 103 147 0.70Phoenix Footwear Group PXG 7 20 0.34Nike NKE 22,457 18,650 1.20 22,800 1.22



Current P/ECurrent P/E


Company Ticker Market Cap Net Profit P/E Market Cap P/EAdidas ADS:GR 8,255 245 33.69 33.69Skechers SKX 1,700 55 31.08Deckers DECK 1,720 117 14.73Puma PUM:GR 3,314 128 25.85 25.85Timberland TBL 1,030 57 18.20Coach Inc. COH 11,730 623 18.82 18.82VF Corporation VFC 8,580 461 18.60 18.60CROCS Inc. CROX 794 (42)Steven Madden SHOO 892 50 17.80Lacrosse Footwear BOOT 122 6 22.24Phoenix Footwear Group PXG 4 (7)Nike NKE 33,205 1,487 22.33 36,039 24.24



Trailing P/ETrailing P/E


Company Ticker Market Cap Net Profit P/E Market Cap P/EAdidas ADS:GR 8,255 245 33.69 33.69Skechers SKX 1,700 103 16.54Deckers DECK 1,720 122 14.06Puma PUM:GR 3,314 128 25.85 25.85Timberland TBL 1,030 67 15.49Coach Inc. COH 11,730 685 17.12 17.12VF Corporation VFC 8,580 524 16.38 16.38CROCS Inc. CROX 794 (14)Steven Madden SHOO 892 59 15.14Lacrosse Footwear BOOT 122 8 15.56Phoenix Footwear Group PXG 4 (5)Nike NKE 32,646 1,730 18.87 40,242 23.26



Current M/BCurrent M/B


Company Ticker Market Cap Assets M/B Market Cap M/BAdidas ADS:GR 8,255 8,875 0.93 0.93Skechers SKX 1,700 996 1.71Deckers DECK 1,720 599 2.87Puma PUM:GR 3,314 2,014 1.65 1.65Timberland TBL 1,030 860 1.20Coach Inc. COH 11,730 2,564 4.57 4.57VF Corporation VFC 8,580 6,471 1.33 1.33CROCS Inc. CROX 794 410 1.94Steven Madden SHOO 892 327 2.73Lacrosse Footwear BOOT 122 89 1.38Phoenix Footwear Group PXG 4 15Nike NKE 26,898 13,250 2.03 28,076 2.12



EV/EBITDAEV/EBITDARegression AnalysisRegression Analysis


Regression ModelRegression Model

• The model used to calculate EV/EBITDA multiple as a function of key inputs multiplied by regression coefficients rather than a simple statistic.

• The key determinants of the EV/EBITDA ratio are:– Tax rate (effective tax rate assessed),– Depreciation & amortization to EBITDA (DA/EBITDA ratio),– Capital expenditures to EBITDA (Capex/EBITDA ratio),– Increase in working capital to EBITDA (dWC/EBITDA ratio),– Revenue growth rate (not included: no reliable data).

• Values from the latest annual reports used as inputs.• The regression was run on 9 peer companies, the

resulting R2 is 0.61.


EV/EBITDA RegressionEV/EBITDA Regression

Company Ticker EV, m EBITDA, m EV/EBITDA Tax Rate DA/EBITDA Capex/EBITDA dWC/EBITDAAdidas ADS:GR 9,006 978 9.21 31.6% 0.2700 0.1830 -0.7353Skechers SKX 1,390 154 9.04 28.4% 0.1339 0.2295 -0.2217Deckers DECK 1,370 198 6.90 36.2% 0.0514 0.0690 -0.2263Puma PUM:GR 2,941 249 11.82 31.6% 0.2183 0.2118 -0.5290Timberland TBL 792 125 6.35 30.3% 0.2309 0.1419 -0.3495Coach Inc. COH 10,840 1,113 9.74 36.2% 0.1106 0.2160 -0.0588VF Corporation VFC 9,050 1,094 8.27 30.0% 0.1559 0.0785 -0.2371CROCS Inc. CROX 744 60 12.32 0.0% 0.6078 0.2915 -0.2153Steven Madden SHOO 805 99 8.15 38.0% 0.0972 0.0344 0.0385

regression coefficients: 6.5695 7.3581 14.6181 1.2023 3.6142

Nike NKE 24,282 2,888 8.41 24.0% 0.1201 0.1467 0.1562

Nike: actual 31,940 2,888 11.06

The EV/EBITDA formula as assessed using the regression is:

6.5695 x (Tax rate) + 7.3581 x (DA/EBITDA) + 14.6181 x (Capex/EBITDA) ++ 1.2023 x (dWC/EBITDA) + 3.6142

nike common stock valuation - may 24, 2010 nike common stock valuation as of may 24, 2010 by...

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