Stock Analysis on Net
Stock Analysis on Net
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Nike Inc. (NYSE:NKE)

Dividend Discount Model (DDM)

Intermediate level

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$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.90%
0 DPS01 0.96
1 DPS1 1.12 = 0.96 × (1 + 17.18%) 1.02
2 DPS2 1.29 = 1.12 × (1 + 15.17%) 1.07
3 DPS3 1.46 = 1.29 × (1 + 13.15%) 1.10
4 DPS4 1.62 = 1.46 × (1 + 11.14%) 1.11
5 DPS5 1.77 = 1.62 × (1 + 9.12%) 1.10
5 Terminal value (TV5) 248.41 = 1.77 × (1 + 9.12%) ÷ (9.90%9.12%) 154.93
Intrinsic value of Nike Inc.’s common stock (per share) $160.33
Current share price $134.13

Based on: 10-K (filing date: 2020-07-24).

1 DPS0 = Sum of the last year dividends per share of Nike Inc.’s 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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.37%
Expected rate of return on market portfolio2 E(RM) 12.48%
Systematic risk of Nike Inc.’s common stock βNKE 0.77
 
Required rate of return on Nike Inc.’s common stock3 rNKE 9.90%

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]
= 1.37% + 0.77 [12.48%1.37%]
= 9.90%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Nike Inc., PRAT model

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Average May 31, 2020 May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015
Selected Financial Data (US$ in millions)
Dividends on common stock 1,491  1,360  1,265  1,159  1,053  931 
Net income 2,539  4,029  1,933  4,240  3,760  3,273 
Revenues 37,403  39,117  36,397  34,350  32,376  30,601 
Total assets 31,342  23,717  22,536  23,259  21,396  21,600 
Shareholders’ equity 8,055  9,040  9,812  12,407  12,258  12,707 
Financial Ratios
Retention rate1 0.41 0.66 0.35 0.73 0.72 0.72
Profit margin2 6.79% 10.30% 5.31% 12.34% 11.61% 10.70%
Asset turnover3 1.19 1.65 1.62 1.48 1.51 1.42
Financial leverage4 3.89 2.62 2.30 1.87 1.75 1.70
Averages
Retention rate 0.60
Profit margin 9.51%
Asset turnover 1.48
Financial leverage 2.05
 
Dividend growth rate (g)5 17.18%

Based on: 10-K (filing date: 2020-07-24), 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23).

2020 Calculations

1 Retention rate = (Net income – Dividends on common stock) ÷ Net income
= (2,5391,491) ÷ 2,539 = 0.41

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 2,539 ÷ 37,403 = 6.79%

3 Asset turnover = Revenues ÷ Total assets
= 37,403 ÷ 31,342 = 1.19

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 31,342 ÷ 8,055 = 3.89

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.60 × 9.51% × 1.48 × 2.05 = 17.18%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($134.13 × 9.90%$0.96) ÷ ($134.13 + $0.96) = 9.12%

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


Dividend growth rate (g) forecast

Nike Inc., H-model

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Year Value gt
1 g1 17.18%
2 g2 15.17%
3 g3 13.15%
4 g4 11.14%
5 and thereafter g5 9.12%

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)
= 17.18% + (9.12%17.18%) × (2 – 1) ÷ (5 – 1) = 15.17%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 17.18% + (9.12%17.18%) × (3 – 1) ÷ (5 – 1) = 13.15%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 17.18% + (9.12%17.18%) × (4 – 1) ÷ (5 – 1) = 11.14%