What is NKE's Intrinsic value?

Nike Inc (NKE) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, Nike Inc's estimated intrinsic value ranges from $43.75 to $98.72 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $98.72 +59.8%
Discounted Cash Flow (5Y) $80.03 +29.5%
Dividend Discount Model (Multi-Stage) $68.17 +10.3%
Dividend Discount Model (Stable) $43.75 -29.2%
Earnings Power Value $46.89 -24.1%

Is Nike Inc (NKE) undervalued or overvalued?

With the current market price at $61.78, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Nike Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.77 0.82
Cost of equity 7.4% 9.5%
Cost of debt 4.0% 4.5%
Tax rate 13.2% 14.4%
Debt/Equity ratio 0.1 0.1
After-tax WACC 7.1% 9.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $51,362 (FY05-2024) to $80,665 (FY05-2034)
  • Net profit margin expansion from 11% to 16%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $80 $118,476M 78.4%
10-Year Growth $99 $146,070M 61.8%
5-Year EBITDA $57 $84,779M 69.8%
10-Year EBITDA $77 $114,115M 51.1%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 50.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.4%
  • Long-term growth rate: 2.0%
  • Fair value: $68.17 (10.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.5% (Low) to 7.4% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $25 to $62
  • Selected fair value: $43.75 (-29.2% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $5,490M
Discount Rate (WACC) 9.0% - 7.1%
Enterprise Value $61,287M - $77,835M
Net Debt $359M
Equity Value $60,928M - $77,476M
Outstanding Shares 1,476M
Fair Value $41 - $52
Selected Fair Value $46.89

Key Financial Metrics

Metric Value
Market Capitalization $91187M
Enterprise Value $91546M
Trailing P/E 20.23
Forward P/E 16.07
Trailing EV/EBITDA 7.85
Current Dividend Yield 256.13%
Dividend Growth Rate (5Y) 10.55%
Debt-to-Equity Ratio 0.10

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $29.62
Discounted Cash Flow (5Y) 25% $20.01
Dividend Discount Model (Multi-Stage) 20% $13.63
Dividend Discount Model (Stable) 15% $6.56
Earnings Power Value 10% $4.69
Weighted Average 100% $74.51

Investment Conclusion

Based on our comprehensive valuation analysis, Nike Inc's weighted average intrinsic value is $74.51, which is approximately 20.6% above the current market price of $61.78.

Key investment considerations:

  • Strong projected earnings growth (11% to 16% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.10)
  • Historical dividend growth of 10.55%

Given these factors, we believe Nike Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.