Stock Analysis on Net

Nike Inc. (NYSE:NKE)

Present Value of Free Cash Flow to Equity (FCFE) 

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Nike Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.95%
01 FCFE0 4,445
1 FCFE1 5,435 = 4,445 × (1 + 22.28%) 4,855
2 FCFE2 6,469 = 5,435 × (1 + 19.03%) 5,162
3 FCFE3 7,491 = 6,469 × (1 + 15.78%) 5,338
4 FCFE4 8,430 = 7,491 × (1 + 12.54%) 5,366
5 FCFE5 9,213 = 8,430 × (1 + 9.29%) 5,238
5 Terminal value (TV5) 378,158 = 9,213 × (1 + 9.29%) ÷ (11.95%9.29%) 215,023
Intrinsic value of Nike Inc. common stock 240,983
 
Intrinsic value of Nike Inc. common stock (per share) $153.63
Current share price $116.32

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

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.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 3.24%
Expected rate of return on market portfolio2 E(RM) 12.24%
Systematic risk of Nike Inc. common stock βNKE 0.97
 
Required rate of return on Nike Inc. common stock3 rNKE 11.95%

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]
= 3.24% + 0.97 [12.24%3.24%]
= 11.95%


FCFE Growth Rate (g)

FCFE 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
 
FCFE 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%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (182,454 × 11.95%4,445) ÷ (182,454 + 4,445)
= 9.29%

where:
Equity market value0 = current market value of Nike Inc. common stock (US$ in millions)
FCFE0 = the last year Nike Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Nike Inc. common stock


FCFE growth rate (g) forecast

Nike Inc., H-model

Microsoft Excel
Year Value gt
1 g1 22.28%
2 g2 19.03%
3 g3 15.78%
4 g4 12.54%
5 and thereafter g5 9.29%

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)
= 22.28% + (9.29%22.28%) × (2 – 1) ÷ (5 – 1)
= 19.03%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 22.28% + (9.29%22.28%) × (3 – 1) ÷ (5 – 1)
= 15.78%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 22.28% + (9.29%22.28%) × (4 – 1) ÷ (5 – 1)
= 12.54%