QUMMIF Nike Equity Research Report

Retailing – Dep Stores, Specialty
Softlines & Apparel/Footwear
Tung Anh Le
(+44) 7511759328
a.le@hss15.qmul.ac.uk
Jonathan Haryono
(+44) 7480683644
j.haryono@hss15.qmul.ac.uk
Angie On Kay Yiu
(+44) 7766774207
a.yiu@hss15.qmul.ac.uk
Company Data
Price ($) 131.78
Data of Price 6 Nov 15
52-week Range ($) 133.52 – 90.69
Market Cap ($mn) 104,069.90
Fiscal Year End May
Share O/S (mm) 674.7
Price Target 140
Limit Price 119
Price Target End Date 31 – Dec – 16
Nov 6, 2015
ACTION
BUY
Nike Inc. (NKE)
Price: $131.78
Price Target: $140.00 Equity Research
Impressive Q1 performance, Ample room for growth . OW
Recommendation
We are resuming coverage of Nike with a Buy rating and Dec 2016 target price
of $140. We believe Nike’s unique comparative advantages and its strong brand
equity is the source for the sustainable growth in the future. As a result, we
expect revenue and earnings expectation to continue to trend upward, and we
view the shares as attractive at current levels.
Analysis
 Nike produced strong Q1 EPS, which grew 23% to $1.34 despite significant
FX headwinds. EPS growth was driven by strong topline growth and effective
financial management across all levers of the business. Q1 reported revenue
for NIKE, Inc. increased 5% and grew 14% on a currency-neutral basis
together with gross margin expanded 90 basis points to 47.5%.
 Demand for the Nike products continued to be strong and healthy across
key categories. Worldwide future orders grew 17% on a currency neutral
basis. All geographies grew double digits except emerging markets, which
grew 6%. Especially, demand in China was extremely impressive as future
orders grew 27% despite its macroeconomic volatility.
Valuation
Our Dec 2016 price target of $140 reflect a 27x multiple on our CY17E EPS of
$5.18 in neutral currency basis and is based on the assessment of DCF and P/E
model.
NIKE, Inc. (NKE; NKE US)
Sources: Company Data, Bloomberg, Queen Mary Students’estimation.
FYE May 2012A 2013A 2014A 2015A 2016E 2017E
EPS (Operating) ($)
Q1 (Aug) 0.68 0.63 0.86 1.09 1.34A -
Q2 (Nov) 0.51 0.57 0.59 0.74 0.86 -
Q3 (Feb) 0.61 0.73 0.76 0.89 1.03 -
Q4 (May) 0.60 0.76 0.78 0.98 1.00 -
FY 2.43 2.69 2.98 3.70 4.23 4.79
CY 2.41 2.93 3.36 4.06 4.51 5.18
Bloomberg EPS FY ($) 2.47 2.67 2.96 3.55 4.19 4.75

Nov 6, 2015 NIKE Inc. (NKE)
Table of Contents
Investment Thesis ........................................................................................................................................1
Company Overview......................................................................................................................................2
Product Analyis................................................................................................................................. 3
Geographic Analyis ........................................................................................................................... 5
Drivers of Growth.........................................................................................................................................7
Technology ......................................................................................................................................7
Partnership......................................................................................................................................7
Women Market ...............................................................................................................................8
E-Commerce & DTC .........................................................................................................................9
Industry Overview......................................................................................................................................10
Financial Analysis & Outlook .....................................................................................................................12
Valuation ....................................................................................................................................................16
Technical Analysis & Outlook ....................................................................................................................19
Risk..............................................................................................................................................................22
Appendix 1: DCF Model..............................................................................................................................25

1
Investment Thesis
We are resuming coverage of NIKE with a Buy rating and Dec 2016 target price of
$140. Nike is currently trade at 29.22 times our calendar 2016 EPS estimate. We
believe Nike’s price will increase in the further based on potential earnings upside
over the next three years. The likely earnings in future are derived from sustainable
high-single-digit top line, potential upside of gross margin and share repurchases.
Our Dec 2016 price target of $140 reflect a 27x multiple on our CY17E EPS of $5.18
in neutral currency basis.
We rank Nike’s brand the best-in-class among other competitors based on its
largest market capital and huge market shares in big market including US and China.
For Nike, innovation has been key to the company’s first-mover advantage and to
the sustainable growth in the future. By integrating new technologies across
products and multiple dimensions, Nike is able to earn higher premium on footwear
and apparel (pricing power with Free. Flywire and Luna integrated technology),
which reflects higher gross margin in Q1 result. Moreover, we are impressed with
the success of Nike’s unique strategy – “Category Offense”, a one-to-one
relationship with customers through the lens of their favorite sports, driving growth
in all key categories, from Sportswear, Running to Basketball. We contend that this
unique approach to customer is a comparative advantage of Nike, providing
increased long-term profit potential, and enabling Nike to expand growth into a
large and relatively untapped total available market opportunity.
Nike reported a strong financial result for its Q1 ended August 31, 2015. Diluted EPS
raised 23% due to broad-based revenue growth, gross margin expansion, selling
and administrative expense leverage, a lower effective tax rate and a lower average
share count. We believe this Q1 results clearly demonstrate Nike’s ability to
continue to drive sustainable, profitable growth despite intensive competition from
peers recently.

2
Company Overview
Company History
Nike, Inc. is an American multinational corporation that is engaged in the design,
development, manufacturing and worldwide marketing and sales of footwear,
apparel, equipment, accessories and services. Today, Nike is the world's largest
suppliers of athletic shoes and apparel. It majorly offers products in Running,
Basketball, Football, Men and Women's Training, Action Sports, Sportswear and
Golf.
Management
The reputable management team gives credibility. Nike today has 62,600
employees worldwide, including retail and part-time employees. Management
considers its relationship with employees to be excellent.
The Board and the Advisory Board are strong. Philip H. Knight, Chairman of the
Board of Directors and Mark G. Parker, the President and Chief Executive Officer
have worked together since 1970s. Under CEO Mark Parker's lead, shares of Nike
have risen 46% in the past year. Nike has rewarded Mr Parker $30 million worth of
stock as an incentive.
Donald W. Blair, Executive Vice President and Chief Financial Officer has retired
from NIKE and succeeded by Andrew Campion, previous Senior Vice President,
Finance, Strategy and Investor Relations for NIKE, Inc. The team work closely
together and continue to drive profitable growth in Nike's business worldwide.
Tim Cook, Chief Executive Officer of Apple Inc., has joint and become the Leader of
the Compensation Committee of the Board of Directors of NIKE, Inc. since 2005. Mr
Cook leads the team and helped to build a Nike-Apply relationship since 2005.

3
Product Analysis
Product overview:
Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+,
Air Max, Air Jordan, Nike Blazers, Air Force 1, Nike Dunk, Foamposite, Nike
Skateboarding and subsidiaries including Brand Jordan, Hurley and Converse that
specialise in different sports.
Jordan Brand offers athletic and casual footwear, apparel and accessories but
predominantly focuses on Basketball. Sales and operating results for the Jordan
Brand contribute to the Nike Brand Basketball category and to respective Nike
Brand geographic operating segments. Hurley offers collection of action sports
apparel for surfing, skateboarding, and snowboarding, and youth lifestyle apparel
and accessories. Its sales and operating results contribute to the Nike Brand's North
America geographic operating segment only. Converse offers sneakers, apparel and
accessories and its sales and operating result are reported on a stand-alone basis.
Product analysis:
Footwear is the most important and thus leading revenue business across all
regions, where sales of footwear increased 13% overall in 2015 from 2014. Apparel,
Nike's second leading revenue business, has a 6% increase in sales whereas
Equipment a Global Brand Division declined 2% and 8% respectively.
Exihibit 1: Nike Revenue by segments FY 2015
(Dollars in millions) Fiscal 2015 Fiscal 2014 % Change
Nike Brand Revenue by:
Footwear $ 18,318 $ 16,208 13%
Apparel 8,636 8,109 6%
Equipment 1,632 1,670 -2%
Global Brand Divisions 115 125 -8%
Global NIKE Brand Revenues 28,701 26,112 10%
Source: Company Data

4
A full range of Nike's product across each segment generate a tremendous revenue,
allowing Nike to maintain the world's largest supplier of athletic footwear and
apparel.
Exhibit 2: Nike’s product segments distribution to revenue in North America,
Western Europe and Greater China FY2015
Source: Company Data, 10K- 2015
Product competition:
Foot Locker and DICK'S Sporting Goods (DKS) are Nike's largest wholesale partners.
Fiscal 2015 showed weak performance of DICK'S Golf Galaxy stores, where comps
declined by 2.9% and Nike faced challenges in the golf category.
On the other hand, Jordan Spieth who is sponsored by Under Armour, has promoted
the golf category significantly for Under Armour. However, Nike has recently
released new golf products, including the Golf Aeroloft jacket and golf footwear
such as the Air Jordan VI Retro Golf Shoe, aiming to boost sales in its golf category.
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Sale to direct to customer
Sale to whole sales
Equipment
Apparel
Footwear
Greater China Western Europe North America

5
Geographic Analysis
Exhibit 3: Nike revenue by region
Developed geographies
In fiscal 2015, North America revenue increased 12% despite congestion at ports on
the West Coast of the United State, which affected the company's supply chain.
Sales in Western Europe continue to grow tremendously. Revenue grew 14 % in Q1
in Western Europe and this growth is expected to expand due to elevated
executions at Intersport, the new Oxford Street's location with JD Sports in London,
and the expansion of the House of Hoos with Foot Locker in Berlin.
For North America, Western Europe and Japan, Nike expects to generate average
annual growth at a high single-digit rate over the next five years. Especially in
particular for North America, Nike expects it to reach $20 billion in revenue by the
end of fiscal year 2020.
The great China
Despite the impact of the macroeconomic volatility in China, in Q1 revenue
increased 30%, EBIT grew 51%, and its future order incremented by 27%, almost
double the estimated rate. This gain was driven by strong performance across all
key categories and boosted by Nike's e-commerce in China.
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
North America
Western Europe
Emerging Markets
Greater China
Central & Eastern Europe
Japan
Q1 2015 Q1 2016

6
Throughout Q1, athletes like Michael Jordan, LeBron James, Kobe, Anthony Davis,
and Paul George all participated in NIKE events throughout China to encourage
youth sports. Most importantly, Nike's category offense has only affected 20% of
the market, hence the growth in this critical geography is expected to continue in
long term when aggressive expansion takes place after currency headwinds
moderate.
Exhibit 4: Nike Greater China Currency Neutral Growth
Source: JP Morgan, Company Data
Out of all Nike's peers, Under Armour and Lululemon Athletica are having aggressive
expansion plans in China too. By the end of the year, two new stores will open in
Hong Kong with one expected to be LULU's most productive international store, and
Under Armour plans to open most of its new stores in China this year.

7
Driver of Growth
Nike Technology
Nike continues to emphasis and rely heavily on technical innovation to achieve their
forecast. It recently announced the opening of an “Advanced Product Creation
Center” to improve the design and manufacturing process of the shoes and apparel
it makes.
 Footwear: NIKE launched the Pegasus 32 in June that featured high-
performance Zoom Air technology to help athletes achieve their fastest run.
In the Jordan Brand, Nike introduced the Super Fly 4 with 'FlightSpeed'
technology that offers great impact protection. Last but not least, Nike has
recently announced that the very popular Self-lacing shoes, an idea made
popular in the 1989 movie “Back To The Future Part II" will be produced and
released in Spring 2016. Nike is proud to turn fiction into fact and it is going
to introduce this product to the market in a major way.
 Performance apparel: Therma-Sphere Max and AeroReact were newly
designed to achieve body temperature regulation in a whole new level for
athletic training. Similarly for Hurley, Jordan, and Converser also utilise Nike
Technology to create new innovative products.
Partnership
 Nike-Apple relationship: One year after Tim Cook, the CEO of Apple joint
Nike in 2006, the two companies collaborated on Nike+iPod, which became
one of the most popular connected fitness trackers. Today Nike's fitness
apps include the Nike+ Run Club, Nike+ Fuel, and Nike+Training Club, which
have more than 60 million people users now. These apps have helped to
build a potential pool of current and future customers. Nike continues to
develope new fitness apps and it aims to be part of the "Apple Watch".
 Apparel contract with athletic programme: In 2000, University of
Texas(UT) started a seven-year, $17 million contract with Nike. Texas and
Nike have since extended that contract three times. Recently, Nike
outcompeted its rivals including Under Armour Inc.(UA) and Adidas AG
(ADDYY), and reached a 15-year agreement with UT, the richest athletic
programme in the country now. The contract is of a total value approaching
$250 million. Nike has then agreed to create a new signature line of apparel
featuring the brands of UT-Austin and its famous former basketball player
Kevin Durant.

8
 Partnership with Flextronics International Ltd (Flex): Nike has recently
announced to partner with Flex, a world-class global manufacturer. Flex is
expertise in innovative design, engineering and manufacturing in industries
such as automotive, medical and consumer electronics for a connected
world. Nike will work with Flex to deliver footwear innovation, which will
facilitate faster delivery or products to consumers. Even tailor made
products are expected to reach customers more efficiently.
Women Market
Nike's 8-year deal with the NBA begins in 2017, which is a key part of its plans to
boost annual revenue to $50 billion by 2020.
Exhibit 5: Nike revenue by customer’s segment
Source: Company Data, 10-K 2015
Nike has spotted the potential in women market, who make up half of the NBA’s
viewers. The company is already planning to make more basketball gear for women,
including Jordan brand sneakers for the first time. Nike opened several women's
only stores and is looking at $7 billion from women's products by fiscal 2017. Some
of the new Nike stores also provide special store services such as the Nike Run Club
and Nike+ Training Club classes through digital booking system. One-off events will
also be hosted in these stores to attract different and new costumers. These are
value-added strategies that are likely to attract incremental revenue opportunities
and market share.
Similarly Nike's peers have spotted the potential in women's market. UA launched
one of its largest campaigns ever target at woman called "I will what I want" and it
plans to make $1 billion revenue from women's products by 2016. Adidas opened
three women's only stores in China last year and one in South Korea. It also
launched new women-only lines such as the Adidas by Stella McCartney. VF
Corporation has launched a new line under its North Face brand this year, also to
boost sales from women's products. In addition, LULU always has its revenue mostly
56.88%
22.16%
16.65%
4.31%
Men’s Women’s Young Athletes's Others

9
coming from women's products. It has three stores in London which also offer
services including yoga classes and run clubs. Like Nike, LULU also aims at a more
premium market, reflect from an average retail price of its product at 80 to 110
British pounds. LULU products are very popular due to costumers' crave for its
"athleisurewear" design, which is thought to be more compelling and versatile than
Nike's.
E-commerce & Direct-to-customer Business
Nike's DTC operations sell products to consumers through e-commerce website,
which are managed within each geographic operating segment. The quarter's
revenue for e-commerce business shows an incredible growth of 46% across all of
NIKE geographies on a constant currency basis. Nike's SNKRS app and customization
options available on NIKEiD are believed to be the strong driving forces for this
incredible sales.
Exhibit 6: Nike’s E-Commerce Sales
On the other hand, Nike's rival Adidas AG bought Runtastic, a mobile fitness
company in August 2015. Runtastic has a portfolio of over 20 fitness apps with 140
million downloads and a strong user base of 70 million. Under Armour purchased
Endomondo and MyFitnessPal in February 2015. These made the UA digital
platform the largest connected fitness community in the world, with over 150
million unique users. These acquisitions have significantly boosted UA's year-over-
year growth by 221% to $14.4 million.
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
0
200
400
600
800
1000
1200
1400
2011 2012 2013 2014 2015
E-COMMERCE%OFTOTALSALES
E-COMMERCESALES($MILLION)
Sales Ecommerce sales % total sales

10
Industry Overview
Nike has a dominant position in global footwear, apparel and equipment industry
since its market capital ($111.96 Billion) is much higher than the sum of other
competitors.
Exhibit 7: Company market capital in the industry
Despite huge size, Nike still showed impressive performance, remaining one of the
most attractive stock in the industry. Indeed, Nike performed better than average
industry peers in almost key aspects: 180 basis point operating margin higher as
well as 420 basis point ROA and ROE higher than the average. In addition, Nike
showed the capability of handling large company size issue by growing revenue by
9.5% annually.
111.96
18.91 20.29
28.05
6.79 3.27 0.94149
0
20
40
60
80
100
120
Nike Adidas Under
Amour
VF Corp Lululemon
athletica
Puma Li Ning
$BILLION

11
Exhibit 8: Nike’s relative value to industry
Source: Company Data, Queen Mary Student’s estimates.
North America industry:
North America is the largest market of Nike and it is also a market in which Nike
competes intensively with its 2 major rivals: Adidas and Under Amour. Nike showed
its market leader role as it accounts for about 58% of US athletic footwear market
according to NPD Group.
The industry showed positive signal with consistently high-single-digit (8%) growth
in the first half of 2015 and it is likely to be benefited from improved labor market
and income in US (15% decrease in unemployment rate in May 2015). We believe
Nike can remain strong growth in North America industry and gain larger market
share in the future.
0 5 10 15 20 25 30 35
Operating Margin % TTM
Net Margin % TTM
ROA TTM
ROE TTM
Relative to industry

12
Financial Analysis & Outlook
Revenue
NIKE reported an impressive 5% top-line growth on a year-over-year basis from
$7.78B to $8.41B, above prior expectation. On a constant currency basis, NIKE, Inc
revenue grew 14%, driven by 15% increase of NIKE Brand and 3% growth of
Converse.
Growth in NIKE Brand was strong across nearly every geography. North America,
its largest region showed revenue up 9% on a currency-neutral basis as well as
strong consumer demand (Future orders grow of 15%), driven by nearly every key
category. Even though this is its most developed market, North America proves that
NIKE plans and strategies can drive consistent revenue growth. Besides, revenue in
greater China was up a significant 30%, tremendous growth which reflected the
success of NIKE strategies. In addition, Nike continues to lead the market in
Western Europe and Japan with the growth of 14% and 35% respectively.
Also on a currency basis, NIKE Brand total World-Wide future orders grew 17%, the
highest rate since 2011, driven by an 11% increase in units and a 6% increase in
average selling prices. All geographies grew double digits except emerging
markets, which grew 6%. The strong future orders growth reflected the continued
global momentum across the NIKE Brand portfolio.
At Converse, Q1 revenue grew 3% on a constant currency basis driven primarily by
double-digit growth in the U.S, partially offset by declines in certain European
countries, primarily the UK. The Converse brand remains strong and was further
enhanced by the launch of the Chuck II in the first quarter.
We believe Nike’s strategic focus on potential opportunities including women’s and
E-commerce will drive above-consensus revenue growth for the company in
coming years. Specifically, for Q2, we expect reported revenue growth at a mid-
single-digit rate, generally in line with the growth rate for Q1, reflecting low-teens
growth on a currency-neutral basis. For the full year, we expect that reported
revenue growth will be squarely within the mid-single-digit range. In long term, we
believe the plan to reach $50B revenue by 2020 (about 10.3% CAGR) can be
possible given the tremendous opportunity for growth in China – a huge profitable
market.

13
Exhibit 9: NIKE Revenue (2011 -2017E)
Source: Bloomberg, Queen Mary’s students Research estimates
Gross Margin
Gross margin performance was also noteworthy, expending 90bps to 47.5% and
exceeding +50bps guide. Nike’s high gross margin was primarily driven by higher
average selling prices in premium products (with Free, Flywire and Luna integrated
technology) and continued strong growth in its higher-margin Direct-to-Consumer
(DTC) business, partially offset by higher product inputs and warehousing costs.
We expect gross margin for Q2 to expand by about 25 basis points based on
company’s efforts to expeditiously clear excess inventory in North America and
keep the inline channel fresh. Since NIKE continued to show its effective DTC
business and efforts of attracting customers to high profit margin products, we
expect gross margin to expand by about 50 basis points for the full year. Given those
positive signals, we expect Nike can possibly return to peak gross profit margin
(46.3% in 2010).
0
10
20
30
40
50
60
2005 2015 2020E
$BILLION

14
Exhibit 10: Nike’s Trail 12 – Month Gross Margin (%)
Source: Bloomberg, Queen Mary Student’s estimates.
Total selling, general & administrative expenses (SG&A)
Total selling, general & administrative expenses (SG&A) leverage 44bps including
7% decline from Q1 demand creation and 10% increase from operating overhead.
Demand creation decreased due to the effect of extraordinary high investment
from World Cup in the first quarter of fiscal 2015 while 10% increase of operating
overhead was driven by variable costs associated with continued strong growth in
our DTC business and operational infrastructure.
We expect Q2 and the full year to grow at a high-single-digit rate, reflecting
continued investments in DTC, consumer-facing digital capabilities and
infrastructure as well as key brand events including Euro Champs and the Summer
Olympics in Rio.

15
Exhibit 11: Nike’s demand creation in relationship with events
EPS
Nike’s 1Q EPS came in at $1.34, which translated to 23% EPS growth despite
significant FX headwinds. The EPS growth was driven mainly by strong top-line
growth and effective financial management. We expect the EPS will grow at mid –
teens level in the next five years to reach approximate $7.50 of EPS by 2020
(embedding 1-2% of EPS growth from tax and share repurchase) or 100% above
today base.
Balance Sheet
Nike remained strong and healthy financial condition, especially in liquidity
position. Specifically, it had $3.2B of cash on hand with $2.2B of short term
investments and the debt-to-capital of only 8.4%. During the year, Nike used
$588M to repurchase 5.5M shares in 1Q.
Total inventories globally was up 9.5% mainly due to the post congestion issues on
the West Coast (labor disputed issue) but we observed that issue is just a near-term
impact. With the upcoming plan to put Nike’s North American distribution center
fully online and the effort to clear excess inventory, we expect the healthy in-line
channel back in Q3.
London Olympics Brazil World
Cup

16
Valuation
We are resuming coverage on Nike with an Outperform rating and $140.00 target
price in the next 12 months. Our target of $140.00 is based on the assessment of
our P/E, DCF methodology.
Exhibit 12: Nike Football field
Discounted cash flow methodology
Our DCF estimate assumes a 7.5% cost of equity based on the 10-year GOC bond
for a risk-free rate of 2.17%, an equity beta of 0.82, and a 2.3% after-tax cost of
debt, for implied weighted average cost of capital (WACC) of 7.9% ( see APPENDIX
1). We have assumed a 5% terminal growth rate given the potential growth of
footwear and apparel industry.
87.40 86.61 90.69
425.56
377.01
133.52
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
DCF Value 2Yr P/E 52 Week Market High/Low
TARGETPRICE

17
Exhibit 13: Nike discounted cash flow valuation
$millions, except per-share data
Terminal growth rate 5%
Cumulative present value of free cash flows 14,173
Present value of terminal value 103,909
Enterprise value 118,082
Net Debt (4,664)
Value of equity 122,746
Diluted Shares 877.3
Value per share $139.91
Current Price 131.78
Estimated Upside 6.17%
Scenario analysis
We produced a sensitivity analysis to various terminal growth rate, discount rate,
margins and exit EBITDA. We believe a WACC of 7.9% and terminal growth rate of
5% are appropriate.
Exhibit 14: Target price sensitivity to WACC and terminal growth rate
Terminal Growth Rate
4.0% 4.5% 5.0% 5.5% 6.0%
6.9% 144.79 171.11 211.29 280.16 425.56
7.4% 124.09 142.33 168.17 207.60 275.20
WACC 7.9% 108.72 122.03 139.91 165.29 204.00
8.4% 96.84 106.94 120.01 137.58 162.48
8.9% 87.40 95.29 105.20 118.03 135.29

18
P/E methodology
With the average P/E FY2 among peers of 28.58 and CY2017 EPS of $5.18, we
calculate the value of Nike at Dec 2016 will be $148.04 based on multiple
methodology. Our Dec 2016 target price of $140 represents a multiple of about 27
times our calendar 2017 EPS estimation. We believe our target multiple is better
accurate and justified given the positive earnings outlook over the next three years.
Dinging in, the earnings growth will be driven by sustainable high-single-digit top-
line, higher gross margin as well as share repurchase ($8B buyback in place).
Our target P/E CY2017 is below average P/E among peers reflecting the difference
in company’s growth cycle: Nike is stepping into mature stage while most of its
peers are in growing stage. We also believe P/E from growth companies including
Under Armour and Puma are overestimated, which push industry P/E upward.
Exhibit 15: Nike P/E valuation methodology
Company Name Market Cap.
(USD)
Enterprise
Value
P/E FY2
ADIDAS 19.61B 20.15B 20.25
UNDER ARMOUR, INC 20.29B 20.94B 65.06
VF CORP 28.00B 30.15B 16.21
LULULEMON ATHLETICA, INC 6.69B 6.14B 19
PUMA 3.41B 3.15B 34.21
LI NING CO, LTD 1.03B 989.81M 16.72
Average 28.58

19
Technical Analysis
Elliott Wave
The Elliott Wave analysis of NKE shows that the stock is currently at cycle number
5. This means that the stock will be entering cycle A and that NKE’s share price is
predicted to take a tumble. Our Elliott Wave model suggests that we wait until the
end of cycle A before entering into NKE. We believe that taking this position would
allow investors to profit during cycle B, when the prices bounce back. We have set
our limit price to $119/share because we believe that NKE will not go below the
level of wave 4 low ($101.70/share). Thus, with a target price of $140/share, this
result in a capital appreciation of 17.65%.
Exhibit 16: Elliot Wave
Source: Bloomberg Terminal

20
Bollinger Bands (BOLL)
The red line above the average (grey) is the upper bound while the green line below
the average is the lower bound. We can see that NKE has been touching the lower
bounds from end of 2014 to early 2015, reflecting that the stock is oversold but it
has recovered around mid-February 2015. Since then, NKE has been constantly
near the upper bounds, indicating that the stock was a popular buy among
investors. The exception was around middle of August when there was a short
panic among investors which affected global stock markets. NKE dropped quite a
few bps, touching the lower bounds for a few trading days. Since then, NKE has
been above the moving average and touching the upper bounds, closing in on
overbought levels. Thus, we believe that at the present moment, NKE is slightly
overbought. However, overbought does not necessarily mean bullish. It takes
strength to reach overbought levels and in a strong uptrend, overbought conditions
can extend. Since NKE broke resistance levels few times in the past year and kept
touching the upper bounds, we believe that NKE will carry a strong uptrend in the
long run. It is normal for NKE to converge to the average or lower bounds. In the
upcoming short run, we would like to see NKE to either be a little closer to the lower
bounds or consistently around the moving average. Therefore, we recommend
waiting for these trends or our limit price of $119/share since NKE is likely to carry
a strong uptrend and will recover soon at higher price.
Exhibit 17: Bollinger Bands
80
90
100
110
120
130
140
Bollinger Bands (BOLL)

21
Relativity Strength Index (RSI)
Since November 2014, NKE’s relativity strength index has went over 70 a few times,
indicating overbought. The only time NKE was under 30, indicating oversold, was a
small period of time in the middle of August. The current relativity strength index
for NKE is around 65, indicating that NKE is in a bull market and close to being
overbought at the moment. In the past month, investors have been bullish on NKE,
driving RSI close to overbought levels. Thus, we believe that investors should wait
until NKE’s RSI is below 60 or when NKE reaches our limit price of $119/share.
Exhibit 18: Relativity Strength Index
0
10
20
30
40
50
60
70
80
90
Relativity Strength Index

22
Investment Risk
Competition
Despite having the largest market share, Nike’s is constantly being challenged by
stiff competition such as Adidas and Under Armour.
Adidas has been focusing their market share in football by sponsoring high-profile
players such as Lionel Messi while developing their market share for basketball.
Adidas has a strategic business plan called “Creating the New” which will be
implemented until the year 2020. The first factor, speed, is very similar to Nike’s
strategy of focusing their business more on ecommerce while setting a target net
income growth of 15% year on year for the next five years. This 15% growth is
achieved through constant top line growth but also improving margins. Secondly,
Adidas is planning to focus on cities with the most total global GDP: Los Angeles,
New York, London, Paris, Shanghai and Tokyo. Lastly, Adidas is also working
together with established companies such as Google and BASF to improve their
product lines.
Under Armour has also copied Nike’s marketing strategy of sponsoring high-profile
NBA players by recruiting Stephen Curry, as their brand icon. However, UA is
different because they sponsor athletes which were considered underdogs but are
currently rising in their respective sports. For example, Stephen Curry has now
become an MVP and an NBA champion but he was overlooked by sponsors because
no one believed that he could bring significant revenues to their company. In
addition, UA is currently sponsoring Jordan Speith, the number one golf player in
the world while Nike’s Tiger Woods has seen his image significantly decline. UA’s
market cap is significantly lower than Nike which makes its growth opportunities
attractive to investors.
In addition to Under Armour and Adidas, Nike’s strategy of increasing its market
share for women consumers is being challenged by Lululemon Athletica. Lululemon
has been the market leader for women apparel by emphasizing on quality and style.
Lululemon targets sophisticated and educated women who are aiming for a fun and
healthy lifestyle while balancing work as well as family. The company’s well known
yoga apparels have become a fashion statement for women.
Overall, NKE is the biggest out of the three in terms of market cap and have the
least room for organic growth.
Future Orders
Nike has mentioned that the company has tried to focus on future orders. However,
the company mentioned that future orders might not be indicative of future
revenues because some deliveries might not be completed due to unforeseen

23
circumstances. In addition, Nike has also mentioned about the possibility of having
too much inventory and not being able to clear them.
Overseas Markets
Nike’s overseas business does bring a lot of revenue to the company but it also
bears some risks including import duties, tariffs, quotas, political and economic
instability and terrorism. In addition, Nike’s manufacturing are outsourced and
based in emerging markets such as China, Indonesia and Vietnam. These countries
have different labour laws from the United States and costs are starting to inflate
as minimum wages in several countries have been increased. In addition, some
complaints regarding the working conditions of these factories have raised
concerns among different groups of people.
Currency
As mentioned earlier in our report, a significant portion of Nike’s revenues comes
from outside of the United States. This means that any significant fluctuations in
the U.S. Dollar would directly affect Nike’s top line and bottom line. In the current
state of economy where the U.S. Federal Reserve seems to be raising interest rates
soon along with the depreciating commodity prices, it appears that the U.S. Dollar
is bound to continue to strengthen against other currencies, especially those of
emerging markets. Thus, a strong U.S. Dollar means that Nike’s top line and bottom
line might look deflated, depending on the amount of revenue generated overseas
as well as the currency change. The expected increase in interest rates by the Fed
would mean less money supply because many would be attracted to put their
money into government bonds. The decrease in money supply would also mean
that the U.S. Dollar would continue its trend and strengthen. Thus, the increase in
U.S. Dollar will make the U.S. markets seem expensive to foreign investors which
would decrease capital flow to the U.S. markets. This would mean that the U.S.
market may become stagnant or even slightly decrease until the U.S. Dollar reaches
a point when it is attractive enough for overseas investors to invest back to the U.S.
markets. Nike has plans to hedge its exposure to forex risk and reduce the volatility
of its cash flow. However, Nike does not disclose specific strategies in the future as
they usually plan strategies based on dynamic economic conditions in various
countries of operations.
Credit Risk
NKE does not possess much credit risk as the company only a relatively low debt-
to-capital ratio of 8.4% and a cost of debt of around 2.3%.
Customer preference
Consumer preferences in different markets are constantly changing along with the
advancement of technology. This pushed Nike to be more innovative with their
product functions as well as styles in order to maintain their market share.

24
Cannibalization
Nike’s focus on increasing ecommerce traffic is predicted to cannibalize its brick
and mortar sales. This will negatively affect the financial health of these stores and
might even force them to shut down.
Online Orders
Nike has mentioned that the company is focusing on expanding its e-commerce
traffic. However, Nike also reported that the company has encountered many
online frauds through its website.

25
Appendix 1. DCF methodology
WACC Calculation
10- year government bond 2.17%
Beta 0.82
Market premium 7.61%
Cost of equity 8.41%
Equity-to-capital 91.6%
Cost of debt 2.3%
Debt-to-capital 8.4%
WACC 7.9%
May
2015
May
2016
May
2017
May
2018
May
2019
May
2020
May
2021
May
2022
Free Cash Flow 2,124 2,571 2,711 3,412 3,702 4,260 4,122 4,197
Discount Factor - 0.98 0.92 0.86 0.79 0.74 0.77
PV of FCF - 1,369 2,504 2,921 2,937 3,133 1,309
Long term growth
rate
5.00%
PV of terminal
value
103,909
Sum of PV of FCF 14,173
Enterprise Value 118,082
Net Debt (4,664)
Equity Value 122,746
Diluted Shares 877.3
Value per share $139.91

QUMMIF Nike Equity Research Report

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