Stock Analysis on Net

Nike Inc. (NYSE:NKE)

Dividend Discount Model (DDM) 

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. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Nike Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 12.24%
0 DPS01 1.19
1 DPS1 1.46 = 1.19 × (1 + 22.28%) 1.30
2 DPS2 1.74 = 1.46 × (1 + 19.46%) 1.38
3 DPS3 2.03 = 1.74 × (1 + 16.63%) 1.43
4 DPS4 2.31 = 2.03 × (1 + 13.81%) 1.45
5 DPS5 2.56 = 2.31 × (1 + 10.99%) 1.44
5 Terminal value (TV5) 228.04 = 2.56 × (1 + 10.99%) ÷ (12.24%10.99%) 128.02
Intrinsic value of Nike Inc. common stock (per share) $135.02
Current share price $105.96

Based on: 10-K (reporting date: 2022-05-31).

1 DPS0 = Sum of the last year dividends per share of Nike Inc. common stock. See details »

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.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 3.94%
Expected rate of return on market portfolio2 E(RM) 12.52%
Systematic risk of Nike Inc. common stock βNKE 0.97
 
Required rate of return on Nike Inc. common stock3 rNKE 12.24%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rNKE = RF + βNKE [E(RM) – RF]
= 3.94% + 0.97 [12.52%3.94%]
= 12.24%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Nike Inc., PRAT model

Microsoft Excel
Average May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019 May 31, 2018 May 31, 2017
Selected Financial Data (US$ in millions)
Dividends on common stock 1,886 1,692 1,491 1,360 1,265 1,159
Net income 6,046 5,727 2,539 4,029 1,933 4,240
Revenues 46,710 44,538 37,403 39,117 36,397 34,350
Total assets 40,321 37,740 31,342 23,717 22,536 23,259
Shareholders’ equity 15,281 12,767 8,055 9,040 9,812 12,407
Financial Ratios
Retention rate1 0.69 0.70 0.41 0.66 0.35 0.73
Profit margin2 12.94% 12.86% 6.79% 10.30% 5.31% 12.34%
Asset turnover3 1.16 1.18 1.19 1.65 1.62 1.48
Financial leverage4 2.64 2.96 3.89 2.62 2.30 1.87
Averages
Retention rate 0.59
Profit margin 10.09%
Asset turnover 1.38
Financial leverage 2.71
 
Dividend growth rate (g)5 22.28%

Based on: 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), 10-K (reporting date: 2017-05-31).

2022 Calculations

1 Retention rate = (Net income – Dividends on common stock) ÷ Net income
= (6,0461,886) ÷ 6,046
= 0.69

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 6,046 ÷ 46,710
= 12.94%

3 Asset turnover = Revenues ÷ Total assets
= 46,710 ÷ 40,321
= 1.16

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 40,321 ÷ 15,281
= 2.64

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.59 × 10.09% × 1.38 × 2.71
= 22.28%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($105.96 × 12.24%$1.19) ÷ ($105.96 + $1.19)
= 10.99%

where:
P0 = current price of share of Nike Inc. common stock
D0 = the last year dividends per share of Nike Inc. common stock
r = required rate of return on Nike Inc. common stock


Dividend growth rate (g) forecast

Nike Inc., H-model

Microsoft Excel
Year Value gt
1 g1 22.28%
2 g2 19.46%
3 g3 16.63%
4 g4 13.81%
5 and thereafter g5 10.99%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 22.28% + (10.99%22.28%) × (2 – 1) ÷ (5 – 1)
= 19.46%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 22.28% + (10.99%22.28%) × (3 – 1) ÷ (5 – 1)
= 16.63%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 22.28% + (10.99%22.28%) × (4 – 1) ÷ (5 – 1)
= 13.81%