NKE Stock Study (7-24-24)
Posted by Mark on September 10, 2024 at 07:03 | Last modified: July 24, 2024 11:48I recently did a stock study on Nike Inc. (NKE) with a closing price of $73.40.
M* writes:
> Nike is the largest athletic footwear and apparel brand in the
> world. Key categories include basketball, running, and football
> (soccer). Footwear generates about two thirds of its sales.
> Its brands include Nike, Jordan (premium athletic footwear and
> clothing), and Converse (casual footwear). Nike sells products
> worldwide through company-owned stores, franchised stores,
> and third-party retailers. The firm also operates e-commerce
> platforms in more than 40 countries. Nearly all its production is
> outsourced to contract manufacturers in more than 30 countries.
> Nike was founded in 1964 and is based in Beaverton, Oregon.
Over the past 10 years, this mega-size ( > $50B annual revenue) company has grown sales and EPS at annualized rates of 6.2% and 8.9%, respectively. Lines are somewhat up, straight, and parallel except for a sales/EPS decline in ’20 (FY ends May; references to year on BI website incremented to match) and additional EPS declines in ’18 and ’23. 5-year and 10-year EPS R*2 are a lackluster 0.48 and 0.43 although Value Line gives a decent Earnings Predictability score of 65.
Over the past decade, PTPM leads industry averages (data unavailable for peers) while ranging from 7.7% in ’20 (downside outlier) to 14.2% in ’21 with a last-5-year mean of 12.4%. ROE leads industry averages while climbing from 25.6% (’15) to 39.6% (’24) with a last-5-year mean of 37.6%. Debt-to-Capital is a bit higher than industry averages while increasing from 9.0% (’15) to 45.3% (’24) with a last-5-year mean of 49.8%.
Value Line gives an A+ grade for Financial Strength. M* reports Quick Ratio of 1.7, rates the company “Exemplary” for Capital Allocation, and assigns a “Wide” Economic Moat. Per 2023 10-K (2024 not yet listed on EDGAR), the interest coverage ratio is 6856 / 205 = 33.4 for ’22 and NMF for ’23 (interest received rather than paid).
With regard to sales growth:
- YF projects YOY 4.8% contraction and 4.8% growth for ’24 and ’25, respectively (based on 32 analysts).
- Zacks projects YOY 4.9% contraction and 4.5% growth for ’24 and ’25, respectively (12 analysts).
- Value Line projects 3.9% annualized growth from ’23-’28.
- CFRA projects contraction of 4.6% YOY and 1.3% per year for ’25 and ’24-’26, respectively.
- M* reports 2-year annualized ACE of 0% while projecting 5.0% per year over the next decade (analyst report).
My 3.0% forecast is below both long-term estimates.
With regard to EPS growth:
- MarketWatch projects 1.9%/year contraction and 1.8%/year growth for ’24-’26 and ’24-’27 (based on 37 analysts).
- Nasdaq.com projects growth of 13.1% YOY and 8.8% per year for ’26 and ’25-’27 (15/13/4 analysts for ’25/’26/’27).
- Seeking Alpha projects 4-year annualized growth of 6.7%.
- YF projects YOY 21.0% contraction and 15.1% growth for ’25 and ’26 (33) along with 5-year annualized growth of 4.9%.
- Zacks projects YOY 21.0% contraction and 13.1% growth for ’25 and ’26 and 5-year growth of 12.3%/year (13).
- Value Line projects 13.2% annualized growth from ’23-’28.
- CFRA projects contraction of 11.4% YOY and 2.6%/year for ’25 and ’24-’26 along with a 3-year CAGR of +2.0%.
- M* projects long-term annualized growth of 12.6%.
My 5.0% per year forecast is near the bottom of the long-term-estimate range (mean of five: 10.0%). Initial value is ’24 EPS of $3.73/share.
My Forecast High P/E is 24.0. Over the past decade, high P/E ranges from 24.0 in ’17 to 66.0 in ’20 (not outlier due to 62.8 in ’18) with a last-5-year mean of 45.8 and a last-5-year-mean average P/E of 37.0. I am at the range bottom.
My Forecast Low P/E is 16.0. Over the past decade, low P/E ranges from 19.5 in ’17 to 43.0 in ’18 (not outlier due to 37.5 in ’20) with a last-5-year mean of 28.1. I am forecasting below the range.
My Low Stock Price Forecast (LSPF) of $59.70 is default based on initial value given above. This is 18.7% less than the previous close and 16.2% less than the 52-week low.
Over the past decade, Payout Ratio (PR) ranges from 27.9% in ’17 to 66.7% in ’18 with a last-5-year mean of 40.3%. I am forecasting below the range at 27.0%.
These inputs land NKE in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.4%.
PAR (using Forecast Average—not High—P/E) of 6.7% is less than I seek for a mega-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 84 studies (my study and 33 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.3%, 9.5%, 31.1, 23.2, and 39.4%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 22.0 is lower than MS (27.2) and higher than mine (20.0).
MS high / low EPS are $5.61 / $3.42 versus my $4.76 / $3.73 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $6.00 is greater than both.
MS LSPF of $73.30 implies a Forecast Low P/E of 21.4: less than the above-stated 23.2. MS LSPF is 7.6% less than the default $3.42/share * 23.2 = $79.34 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 22.8% greater than mine, however.
With regard to valuation, PEG is 1.9 and 3.7 per Zacks and my projected P/E, respectively: somewhat rich. Relative Value [(current P/E) / 5-year-mean average P/E] is dirt cheap at 0.53.
MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Consistent with this is MS TAR of 17.9% that is 7.3% per year greater than mine.
Per U/D, NKE is a BUY under $73/share. BI TAR criterion is met < $57/share given a forecast high price ~$114.
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