Stock Analysis on Net

Nike Inc. (NYSE:NKE)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Nike Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.06%
01 FCFF0 5,156
1 FCFF1 5,805 = 5,156 × (1 + 12.59%) 5,089
2 FCFF2 6,502 = 5,805 × (1 + 12.01%) 4,998
3 FCFF3 7,246 = 6,502 × (1 + 11.43%) 4,883
4 FCFF4 8,032 = 7,246 × (1 + 10.86%) 4,746
5 FCFF5 8,858 = 8,032 × (1 + 10.28%) 4,589
5 Terminal value (TV5) 258,592 = 8,858 × (1 + 10.28%) ÷ (14.06%10.28%) 133,964
Intrinsic value of Nike Inc. capital 158,269
Less: Short-term borrowings and long-term debt (fair value) 7,895
Intrinsic value of Nike Inc. common stock 150,374
 
Intrinsic value of Nike Inc. common stock (per share) $99.25
Current share price $94.13

Based on: 10-K (reporting date: 2023-05-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

Nike Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 142,618 0.95 14.69%
Short-term borrowings and long-term debt (fair value) 7,895 0.05 2.59% = 3.05% × (1 – 14.93%)

Based on: 10-K (reporting date: 2023-05-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,515,122,068 × $94.13
= $142,618,440,260.84

   Short-term borrowings and long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (18.20% + 9.10% + 17.70% + 20.20% + 16.10% + 8.30%) ÷ 6
= 14.93%

WACC = 14.06%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Nike Inc., PRAT model

Microsoft Excel
Average May 31, 2023 May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019 May 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 291 299 296 151 131 124
Net income 5,070 6,046 5,727 2,539 4,029 1,933
 
Effective income tax rate (EITR)1 18.20% 9.10% 17.70% 20.20% 16.10% 8.30%
 
Interest expense, after tax2 238 272 244 120 110 114
Add: Dividends on common stock 2,059 1,886 1,692 1,491 1,360 1,265
Interest expense (after tax) and dividends 2,297 2,158 1,936 1,611 1,470 1,379
 
EBIT(1 – EITR)3 5,308 6,318 5,971 2,659 4,139 2,047
 
Current portion of long-term debt 500 3 6 6
Notes payable 6 10 2 248 9 336
Long-term debt, excluding current portion 8,927 8,920 9,413 9,406 3,464 3,468
Shareholders’ equity 14,004 15,281 12,767 8,055 9,040 9,812
Total capital 22,937 24,711 22,182 17,712 12,519 13,622
Financial Ratios
Retention rate (RR)4 0.57 0.66 0.68 0.39 0.64 0.33
Return on invested capital (ROIC)5 23.14% 25.57% 26.92% 15.02% 33.06% 15.03%
Averages
RR 0.54
ROIC 23.12%
 
FCFF growth rate (g)6 12.59%

Based on: 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31), 10-K (reporting date: 2018-05-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 291 × (1 – 18.20%)
= 238

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 5,070 + 238
= 5,308

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,3082,297] ÷ 5,308
= 0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,308 ÷ 22,937
= 23.14%

6 g = RR × ROIC
= 0.54 × 23.12%
= 12.59%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (150,513 × 14.06%5,156) ÷ (150,513 + 5,156)
= 10.28%

where:

Total capital, fair value0 = current fair value of Nike Inc. debt and equity (US$ in millions)
FCFF0 = the last year Nike Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Nike Inc. capital


FCFF growth rate (g) forecast

Nike Inc., H-model

Microsoft Excel
Year Value gt
1 g1 12.59%
2 g2 12.01%
3 g3 11.43%
4 g4 10.86%
5 and thereafter g5 10.28%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 12.59% + (10.28%12.59%) × (2 – 1) ÷ (5 – 1)
= 12.01%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 12.59% + (10.28%12.59%) × (3 – 1) ÷ (5 – 1)
= 11.43%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 12.59% + (10.28%12.59%) × (4 – 1) ÷ (5 – 1)
= 10.86%