Nike, Inc.

NKE Details

Nike, Inc. (NYSE: NKE) is one of the world's most well-known athletic footwear and apparel brands. The company designs, develops, and markets footwear, clothes, equipment, and accessories for six key product categories worldwide: Running, NIKE Basketball, Jordan Brand, Football (Soccer), Training, and Sportswear. The majority of its revenues comes through its footwear sales. The company's footwear is produced at 191 factories spread over 14 countries. In addition, NKE has a strong brand portfolio, including Nike, Converse, Hurley, and Jordan.

FY21 Results: The company reported a 19.07% increase in revenues to USD 44.54 billion in FY21 (ended May 31, 2021) compared to USD 37.40 billion in FY20, primarily due to increased footwear sales. In addition, the company reported an increase in net income to USD 5.73 billion in FY21 vs. USD 2.54 billion in FY20. NKE reported a decline in inventory levels to USD 6.85 billion in FY21 compared to USD 7.37 billion in FY20, driven by strong customer demand.

Key Risks: NKE does not own or operate any footwear manufacturing facilities and entirely depends on independent contract manufacturers. In FY21, four footwear contract manufacturers accounted for more than 10% of total footwear production, accounting for approximately 61% of total NIKE Brand footwear production. As a result, there could be a significant detrimental effect on the company's results of operations if any of its primary contract manufacturers fail to make timely shipments or fulfill its quality standards.

Outlook: NKE expects to achieve high single-digit to low double-digit revenue growth, a gross margin rate in the high 40s, diluted earnings per share growth in the mid to high teens, a rate of return on invested capital (ROIC) in the low 30% range, and annual capital expenditures of roughly 3% of revenues by FY25.

Valuation Methodology: Price/Earnings per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NKE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NKE's stock price has surged 73.65% in the past twelve months and created a fresh 52-week high today. The stock is currently trading much above its 50 and 200 DMA levels, and its RSI Index is at 77.62. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 150.11. Given the steep rise in the stock price, we believe the robust fundamentals are already factored in and recommend a "Sell" rating on the stock at the current price of USD 169.50, up 1.19% as of August 02, 2021, at 01:08 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV

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