This report analyzes Nike Inc. by four analysts from Temple University's Investment Association. It provides an overview of Nike's operations, financials, strategies, and risks. Nike generates most revenue from footwear but is growing its direct-to-consumer sales. The report recommends buying Nike due to its brand strength, growth in China, and potential for increased revenue and profits through expanding direct online sales and retail stores. However, risks include economic downturns, competition, and reliance on international suppliers.

1. INITIATING COVERAGE REPORT Temple University Investment Association
The Fox Fund
November 10th, 2016
Tyler McMahon: Lead Analyst
Tyler.mcmahon@temple.edu
Andrew Cutrona: Lead Analyst
Andrew.cutrona@temple.edu
Kevin Vo: Associate Analyst
Kevin.vo@temple.edu
Amine Aouom: Associate Analyst
Amine.aouom@temple.edu
COMPANY OVERVIEW
Nike Inc. is an apparel and footwear company that conducts
operations in the design, development, marketing, and sale of
sports and lifestyle footwear (61% of FY 2016 revenue),
apparel (28% of FY 2016 revenue), equipment (5% of FY 2016
revenue), and accessories and services (6% of FY 2016
revenue). Nike markets product designed for athletic and
recreational uses. The company’s athletic footwear products are
designed primarily for specific athletic use, although a large
percentage of the products are worn for casual or leisure
purposes. The company wholly-owned subsidiaries include
Converse Inc., and Hurley International LLC. Nike’s business
has been primarily concentrated in the United States, which
accounted for 42% of the company’s total sales in FY 2016.
The company also derived FY 2015 revenue from China
(10.8%), Germany (3.8%), Canada, (3.6%), United Kingdom
(3.3%), France (2.8%), Japan (2.7%) and in other locations
(31%). NKE reports Q2 2017 earnings on December 27, 2016.
INVESTMENT THESIS
Nike Inc. is currently trading at 19.1% discount to its average
three-year forward P/E multiple of 20.33x, and a 10.5%
discount to its average three-year forward EV/EBITDA
multiple of 15.42x. Despite significant growth in revenues and
earnings, investors began devaluing Nike when it missed
analysts’ quarterly estimates at the end of Q3 2016, due to (1)
the economic slowdown in China in 2015 and early 2016, and
(2) the emerging competition from Under Armour and Adidas
in the North America segment. Nike is recognized as one of
the most well-known and valuable apparel brands around the
world. Nike reported higher sales and revenue growth in the
Greater China segment, in part from the country’s growing
middle class, its role in the 2008 Summer Olympics and the
upcoming 2022 Olympics, and rising demand for the Nike
brand footwear and apparel. Through Nike’s direct-to-
consumer channels, it will provide more online and retail
services to consumers in all geographical segments, which
consists 24.3% of total revenue in FY 2016. Looking forward,
Nike’s strong revenue and EPS growth, additional store
openings, international brand recognition, and rising market
share in China will generate more revenue growth and higher
dividend returns for its investors in the next two years. Nike’s
target share price is expected to reach $57.38, yielding a 13.2%
return.
CONSUMERDISCRETIONALRY:ATHLETICAPPAREL
Nike Inc.
Exchange: NYSE Ticker: NKE Target Price: $57.38
Sector Outperform
Recommendation: BUY
Key Statistics: values in mm except per share
Price $50.69 52 Week Low $49.80
Return 13.2% 52 Week High $68.20
Shares O/S 1.665 Yield 1.25%
Market Cap $85.06 Enterprise Value $81.67
One-Year Price Graph
Earnings/Revenue Surprise History:
Quarters EPS Revenue Δ Price
2Q16 5.20% (1.60)% (2.38)%
3Q16 13.4% (2.10)% (3.79)%
4Q16 2.30% (0.30)% 3.84%
1Q17 30.7% 2.20% (3.78)%
Earnings Projections:
Fiscal
Year
Q1 Q2 Q3 Q4 Total
2015 $0.55 $0.37 $0.45 $0.49 $1.86
2016 $0.67 $0.45 $0.55 $0.49 $2.16
2017 $0.73 $0.43e $0.61e $0.59e $2.37
2018e $0.74 $0.55 $0.72 $0.69 $2.70
All prices current at end of previous trading sessions from date of
report. Data is sourced from local exchanges via FactSet, Bloomberg
and other vendors. The Fox Fund fund does and seeks to do business
with companies covered in its research reports.

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SEGMENTS OVERVIEW
Geographic Segments
North America Market
Nike Brand & Converse sales in the
United States accounted for
approximately 45% in its 2015 and
2014 fiscal years. Nike Brand, Jordan
Brand, Hurley and converse products
are sold in thousands of retailers
around the country. Products are
found in various footwear stores,
sporting goods stores, athletic
specialty stores, department stores,
skate, tennis and golf shops and other
retail accounts. Nike has 185 Nike
Brand factory stores, 33 Nike Brand
in-line stores, 92 Converse stores, and
29 Hurley stores operating within the
United States.
International Market
For both fiscal 2015 and fiscal 2014, non-U.S. NIKE Brand and Converse sales accounted for 54% of total revenues.
Nike sells its products to retail accounts, through its own Direct to consumer operations as well as through a mix of
independent distributors, licensees and sales representatives around the world. Nike sells to thousands of retail accounts
and ships products to 45 distribution centers outside the United States. Nike has 512 Nike Brand factory stores, 73 Nike
Brand in-line stores, and seven Converse stores operating internationally.
Product Segments
Footwear
Nike’s athletic footwear products are designed primarily for specific athletic use, although a large percentage of the
products are worn for casual or leisure purposes. Nike focuses on innovation and high-quality construction for all of
their products. Sportswear, running, the Jordan Brand and soccer are currently Nike’s best-selling footwear categories.
Apparel
Nike sells apparel covering the above-mentioned categories, which are sold predominantly through the same marketing
and distribution channels as athletic footwear. Footwear, apparel and accessories are often marketed in “collections” of
similar use or by category. Nike apparel is also marketed with licensed college and professional team and league
logos. Nike’s sports apparel, similar to our athletic footwear products, are designed primarily for athletic use and
exemplifies the company's commitment to create innovative and high-quality products. Sportswear, men’s training,
running, soccer and women’s training are currently Nike’s top-selling apparel categories.
Equipment
Nike sells a line of performance equipment and accessories under the NIKE Brand name, including bags, socks, sport
balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs and other equipment designed
for sports activities. The company also sell small amounts of various plastic products to other manufacturers through
our wholly-owned subsidiary, NIKE IHM, Inc.
Other
The Jordan Brand designs, distributes and licenses athletic and casual footwear, apparel and accessories predominantly
focused on basketball using the Jumpman trademark. Hurley, a subsidiary of Nike, designs and distributes a line of
action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales and operating results for
Hurley are included within the Nike Brand Action Sports category and within the North America geographic operating
segment. Another of Nike wholly-owned subsidiary brands, Converse, designs, distributes and licenses casual sneakers,
apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks.

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INDUSTRY OVERVIEW
Footwear Market
The global footwear market has seen
diversified trends across different geographic
regions such as North America, Europe, Asia
Pacific, and Rest of the World. The global
footwear market is driven by factors such as
growing demand for new design of footwear
and growing awareness about healthy and
active lifestyle. Increasing population,
propensity of people to spend more and
emerging retail outlets have also attributed to
the growing demand for footwear across the
global market. Also, there are certain
restraints which are slowing down the growth
of the global footwear market. Increasing
environmental concerns and rising prices of
raw material are the main factors which are
acting as restraints for the global footwear
market. The footwear market has been
divided into three segments: by types of
footwear, by consumer group, and by
geography. Further, the by types of footwear
include athletic footwear and non-athletic
footwear. The report also offers competitive
analysis about sub-segment of athletic
footwear and non-athletic footwear. Athletic
footwear segment offers products of four
categories which include insert shoes, sports
shoes, hiking shoes and backpacking boots.
Sports shoes are expected to have the largest
market in terms of volume globally from
2014 to 2020.
Industry/Consumer Trends
Consumer group, which includes men,
women, and kids. The men's footwear
market accounts for maximum market share
followed by women and kids. In terms of
value, North America is expected to have the
largest market share for consumer group
footwear market from 2014 to 2020.
Globally, Asia Pacific accounts for the
maximum share for consumer group
footwear market in terms of volume during
the forecast period. This market research
study analyzes the global footwear market
and provides estimates in terms of revenue
(USD Million) and volume (Million Units)
from 2014 to 2023. It recognizes the drivers
and restraints affecting the industry and
analyzes their impact over the forecast period
from 2015 to 2023. Moreover, it identifies
the significant opportunities for market
growth in the years to come.
MOATS
Pricing Power: As the leading player in the $320 billion global athletic
footwear, apparel, and equipment market (according to NPD Group
estimates), we believe Nike has developed a wide moat via its superior
product-development capabilities, universally recognized brands, and
economies of scale. Nike's global brand reach, including a strong presence in
emerging markets, is the result of core research and development capabilities
and a marketing budget of more than $3 billion (including endorsements from
some of the most popular global athletes). As a result, consumers have shown
a propensity to pay premium prices for Nike's products. With leading market
share in a variety of categories including sportswear ($6.6 billion), running
($4.9 billion), basketball ($3.7 billion), and athletic training ($3.8 billion in
annual sales), Nike can exert a significant amount of influence over retailers,
many of whom rely on its products to drive customer traffic.
Rights & Endorsements: Nike is a company driven to provide innovative
and quality products for athletes all over the world. Its powerful brand puts
them in position to have rights with and endorsement deals with the biggest
names in sports. Nike has renewed its massive NFL on-field apparel rights
contract, adding three years to the five-year deal that took effect in 2012. The
on the field rights extension also blocks competitors like Under Armour from
the valuable partnership until 2019. Nike also has endorsements deals with
some of the largest athletes in sports that include Lebron James, Kevin
Durant, Cristiano Ronaldo and Rodger Federer. Their ability to have
endorsements with players in all different sports gives their brand exposure in
all athletics. This influential marketing strategy will continue to build Nike’s
brand as well as increase sales for all of their products.
RISKS
Economic Trends: Nike's intrinsic value can be influenced by global
economic trends, including discretionary spending patterns and exchange
rates. Industry competition, particularly from Under Armour, Adidas, and
Puma is always present and could also come from new entrants in developing-
market economies such as China. Changes in consumer tastes and preferences
are always a risk in athletic footwear and apparel categories, and despite
performance attributes, products do have a strong element of fashion. As
sportswear and women's segments grow faster than core sports apparel, sports
footwear and equipment, we believe there could be greater volatility and
fashion risk. With more than half of its sales coming from outside the U.S.
and a heavy concentration of Asia-based suppliers, the firm does face the risk
of increased import costs and currency volatility, which cannot be hedged
indefinitely.
Future Growth: Nike has experienced strong growth in its home market as
the brand's popularity has been ever increasing in recent years. We note that
some athletic segments, such as basketball where Nike is dominant, tend to be
somewhat cyclical with fashion trends and investors should be wary of
extrapolating trends too far into the future. Other categories, such as running,
have a more functional component and brand loyalty as runners are wary of
switching brands for fear of injury. Currently, Nike appears to be gaining from
an increase in sports participation globally. Although the company has always
succeeded with a wholesale-dominated strategy, recent gains and increasing
management emphasis on direct-to-consumer channels pose execution risks.
Retail channels require greater investment and higher overhead; profits also
tend to be more cyclical with the economy. In the near term, direct-to-
consumer sales could increase growth and profitability, but investors run the
risk that such investments could dilute returns in the longer term.

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CATALYSTS
Direct-to-Consumer Sales
Nike’s (NKE) DTC (direct to consumer)
channel includes sales made online on
Nike.com and through its own retail stores.
Nike’s direct to consumer operations sell
NIKE Brand, Jordan Brand, Hurley and
Converse products to consumers. At the end
of FY 2015, Nike had about 931 retail
locations, in which it expanded its store
count by 73 in FY 2015. At the end of FY
2016, Nike had about 1045 retail locations,
expanding its store count by 114 in its most
recent FY. In contrast, Adidas (ADDYY)
closed a net total of 191 stores in 2015.
While wholesale revenues remain the largest
component of overall NIKE Brand
revenues, Nike continues to expand its DTC
businesses in each of its geographies. Nike's
direct-to-consumer business helps cut out
the middleman that would normally pocket a
percentage of sales. Through e-commerce, Nike can eliminate much of the fixed cost associated with physical stores
while also increasing its ability to up-sell products. For instance, the company's NikeID service allows customers to
create custom shoes with their own designs and colors, for a fee of course. The contribution from the DTC channel has
been rising steadily over the past few quarters for Nike. For FY 2016, DTC revenues represented approximately 26% of
total NIKE Brand revenues, up from 20% in FY 2014 and 23% in FY 2015. It is likely to make up even more of the top
line in the future as the company continues to invest in digital infrastructure and increase its number of owned stores.
On a currency-neutral basis, DTC revenues increased 25% for FY 2016, driven by strong online sales growth, the
addition of new stores and comparable store sales growth of 10%. While total sales rose 8%, Nike.com sales increased a
full 49% YoY. This follows a 46% rise between FY 2015
and 2016. In FY 2016, online sales represented
approximately 22% of total NIKE Brand DTC revenues. In
2015, Nike outlined a goal of reaching $50 billion in revenue
by 2020, an increase on the top line of $20 billion from
$30.6 billion in FY 2015. Half of that growth is expected to
come from the direct-to-consumer (DTC) channel, which
includes Nike's own stores and e-commerce as it expects
DTC to grow from $6.6 billion in FY 2015 to $16 billion in
FY 2020. In other words, the burden on futures orders or
wholesale to deliver growth will be significantly less than it
has been in the past. E-commerce will be a key driver of
that growth. Nike expects E-commerce revenue to reach $7
billion by FY 2020. The surge in online sales comes not only
from the growing trend toward online shopping, but also from some key investments Nike has made. A few such
investments include creating seamless ways to shop both in Nike stores and online by having tablets in store to order
anything not in stock at that time. Another investment has been building out a series of mobile apps that connect with
consumers more personally and to allow them to make purchases easily from their smartphone. The next generation of
Nike's mobile shopping plan was recently launched called Nike+. Nike+ is a mobile app that allows users to track
workouts, contact Nike support, see trending news, and utilize the in-app shopping feature, which makes
recommendations based on the user's activities and habits. The gross margin Nike enjoys on its direct-to-consumer sales
is higher than when its items are sold wholesale, Nike gets to charge a higher selling price for online customized NikeID
gear without much change in material or manufacturing, and Nike is expanding internationally by building out more
robust online sales channels and doubled its number of local online storefronts in specific countries from 20 to 40. All
of these initiatives will continue to grow Nike's online sales which will directly benefit the company's bottom line.

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China Emerging Market
Nike is a leader in the sportswear industry and its brand visibility is growing immensely in China as fitness is becoming a
staple in Chinese daily life. In June, China’s State Council approved a National Fitness Plan which sets ambitious targets
to improve national fitness, increase sports participation and encourage people to incorporate regular physical activities
into their weekly routines. The government will invest in the construction of new public sports facilities such as fitness
centers, sports venues and stadiums, and implement fitness and sports activities programs. Assuming, rather
conservatively, that China's fitness industry grows in line with the country's GDP, it is likely to be worth more than $200
billion by 2020. Currently, China accounts for $3,785 million dollars in sales (11.7% of total sales) which is 32% of all
international sales. Sportswear, basketball and Jordan have all been driving revenues for Nike in China. As it stands,
footwear is Nike's leading revenue contributor in China but apparel could reduce the gap with the rise of the Chinese
fitness industry. Since FY 2014 Nike’s sales in China have from $2.602 billion to $3.785 billion, a 45.5% increase over
two years. This will boost demand for Nike's athletic merchandise immensely. Analysts believe global name brands such
as Nike who endorse big name athletes are dominant players for accelerated growth as China brands have yet to
successfully penetrate the market. Nike endorses iconic athletes and sports teams around the world such as LeBron
James, Christiano Ronaldo, FC Barcelona, etc. contributes heavily to their commitment to innovative products and
continued sales growth around the world. Nike’s sales in China are projected to rise to $4,967 billion in FY 2018, a 29%
increase from sales in 2016. We believe this is a conservative estimate as China has a growing middle class of nearly 220
million citizens compared the United States 121 million. Due to Nike’s strong brand reputation and awareness, we
believe Nike has an extreme growth opportunity in China as it is the global leader in sports footwear, apparel and
equipment internationally. Nike will continue to have great international growth as it isn't a business that merely sells
apparel or athletic footwear, it thrives by selling its brand.
Seasonal Revenue Headwinds
Retail industries benefit particularly well from the Thanksgiving to New Year’s period. Retailers do 20 to 30 percent of
the year’s business during the holiday season. Nike has seen superb growth after the holidays in Q3 (November to
February) as it reported earnings growth of 17.1% YoY growth from FY 2014 to FY 2015 and 23.6% YoY growth from
FY 2015 to FY 2016. Holiday spending is expected to increase 10% compared to the 2015 holiday season which is its
highest point since the Great Recession. Consumer purchases climbed 0.5% in September, the most in three months as
incomes grew, signaling momentum in the biggest part of the U.S. economy. We believe this trend will continue into the
holidays as consumer will spend an average of $935.58 during the holiday season. The increase in spending will certainly
help boost retail sales especially for a leading footwear and apparel retailer like Nike.

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FINANCIALS
Revenue
Nike derives its revenue from five
segments: Footwear (61.4% of FY 2016
revenue), Apparel (28.0%), Equipment
(4.5%), Global Brand Divisions (0.2%),
and Converse (6.0%). Since FY 2013, total
revenue has grown from $25.3 billion to
$32.4 billion, illustrating an 8.5% CAGR.
Sales from its Footwear segment increased
by 8.5% YoY, accounting 51.1% ($3.6
billion) of all revenue growth since 2013.
Every geographical segments are expected
to generate higher sales for FY 2016, in
part from its direct-to-consumer channels
consisting 22.4% of total revenue. Due to
high demands for the company’s brand
products, its strong initiative for
innovation will develop further brand
connections and compelling retail experiences to consumers online and across NIKE-owned and retail partner stores.
International success is a key factor to Nike’s growth as every international region achieved double-digit growth in sales
on a currency neutral basis. Going forward, Nike will increase its revenue at 8.31% CAGR from $32.4 billion to $37.9
billion in FY 2018, driven by innovation and strong growth in brand product lines.
North America (45.5% of FY 2016 Revenue)
The North America segment increased its revenue from $11.2 billion to $14.8 billion from FY 2013 to FY 2016, at a
CAGR of 9.7%. Sales of footwear accounted 63.0% of total revenue in FY 2016, which grew 9.3% YoY from $8.5
billion in FY 2015 to $9.3 billion. The company’s strength in footwear sales, due to higher demand and preferences for
the Jordan Brand footwear, have generated higher revenue growth in this segment. With the emergence of direct-to-
consumer channels through online shopping and retail stores, Nike has the advantage to drive up sales in the domestic
market.
Europe (22.6% of FY 2016 Revenue)
The Europe segment reported revenue of $7.31 billion at the
end of FY 2016, an increase of 34.9% from $5.42 million in
FY 2013 (10.5% CAGR). Revenues in Western Europe
increased by 14% with double-digit growth in every territory,
leading the pack by UK & Ireland, and AGS (Austria,
Germany and Switzerland), with growth rates of 12% and
16% respectively. Sales from DTC grew 28% for FY 2016,
due to the strength of online sales growth, the addition of
new stores, and the growth of comparable store sales at 13%
within this segment.
Greater China / Japan (14.4% of FY 2016 Revenue)
Revenue from the Greater China and Japan segment have
grown at a CAGR of 4.5%, from $3.35 billion in FY 2013 to
$3.82 billion in FY 2016. Sales in China attributed all of
revenue growth with $1.3 billion, offsetting losses of $7
million from the Japanese market since 2013. China’s massive
market size, with the growth of the country’s middle class and rising popularity of basketball, will provide the advantage
to boost demand for Nike’s products. With the company’s market share over 10% in China, Nike is expected to drive
higher revenues and sales in this segment.
Emerging Markets (11.4% of FY 2016 Revenue)
Revenue from the Emerging Markets segment fell from $3.8 billion in FY 2013 to $3.7 billion, the only geographical
segment to report revenue losses.

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Margins
From FY 2014 to FY 2016 gross margin has expanded
from 44.8% to 46.2%, operating margin has expanded
from 13.2% to 13.9% and profit margin has expanded
from 9.7% to 11.6%. NIKE, Inc. gross margin
expanded 20 basis points between FY 2015 and FY
2016. Gross margin increased primarily due to higher
full-price average selling price and the favorable impact
of growth their higher-margin direct to consumer
(DTC) businesses. However gross margin expansion
was partially offset by higher product costs, primarily
due to shifts in mix to higher-cost products and labor
input cost inflation, higher off-price mix and
unfavorable changes in foreign currency exchange rates.
NIKE Brand product’s higher full-price average selling
price (ASP) increased gross margin approximately 190 basis points in FY 2016 due to innovative premium products with
higher prices and, to a lesser extent, inflationary price increases. Growth in Nike’s higher-margin direct to consumer
(DTC) business increased gross margin approximately 20 basis points in FY 2016. Higher NIKE Brand product costs
decreased gross margin approximately 70 basis points in FY 2016 due to a shift in their product mix to higher-cost
products and input labor cost inflation which was only slightly offset by lower input material costs. Clearing excess
inventory in North America through off-price products decreased gross margin approximately 30 basis points in FY
2016. Unfavorable changes in foreign currency exchange rates decreased gross margin approximately 40 basis points in
FY 2016. Higher product design and development costs decreased gross margin approximately 20 basis points in FY
2016. Converse’s shift to a lower-margin product mix decreased gross margin approximately 20 basis points in FY 2016.
In FY 2015, Nike’s gross margin expanded 120 basis points over FY 2014. Nike’s gross margin benefited from
delivering innovative, premium products that command higher prices while maintaining a balanced price-to-value
proposition for consumers. Nike has been steadily changing its sales mix toward higher priced products which has
helped to increase sales revenue faster than sales volume. For example, in FY 2015 Nike increased footwear unit sales
9% while growing revenue 13% and 17% excluding foreign currency fluctuations, showing the effect of Nike's pricing
power in footwear. The company forecasts re
aching $50 billion in annual sales by 2020. At its current profit margin, that would mean net income of $5.81 billion, a
35% increase over fiscal year 2016. From the premium pricing to efficiency gains and cost management, Nike is likely to
see its profit margin increase even further as net income continues to increase. Currency exchange rate fluctuations and
excess inventories or inventory shortages could result in lower revenues and higher costs which could hinder future
margin expansion.
Earnings
CVS Health has missed earning in Q1 and Q2 on FY
2016. Although the official earnings numbers reflected a
decrease from the prior-year-periods, the news was not
surprising or that concerning. The negative comparisons
stemmed from the costs related to the acquisitions of
Omnicare and Target’s in-store pharmacies and clinics
that took place in December of 2015. As mentioned
before, besides paying $542 million of debt and $114
million in interest expense during Q2 of FY 2016
compared to Q2 of FY 2015, the company reported $81
million more in integration costs related to these
acquisitions. On a positive note, non-GAAP earnings
per share grew from $1.32 from $1.22 in the prior year
period, which exceeded investors’ expectations. Prior to
Q1 & Q2 of FY 2016, CVS Health has surpassed earnings expectations 17 out of last 18 periods with an average
earnings surprise of 15.92%. Our sector has forecasted EPS of $5.08 in FY 2016 (9.7% YoY growth) and $6.18 in FY
2017 (21.7% YoY growth). CVS Health has shown the ability to consistently grow earnings and we are very bullish that
the company will continue to do so going forward as it continues to expand and see success in both of its segments.

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Free Cash Flow
Nike expects to grow its Free Cash Flow, or FCF, at a faster pace compared to net income over the next five years
through fiscal 2020. In fiscal 2015, FCF grew by ~74%, compared to the 21.5% growth in net income. The growth in
FCF has been supported by Nike’s expanding margins, and a slight fall in capital expenditure relative to sales.
Shareholder Return
Nike currently has a dividend yield of 1.27%. The company paid $266.4 million of cash dividends as of Q3 2016, with
quarterly payments of $.16 per share spanning back to the first quarter of 2016. As of November 19, 2015, the company
approved a four-year repurchase program of shares worth $12 billion, in addition to a 2-for-1 stock split for class A and
class B shares. Since the stock split will not have any effect on the company’s equity, the repurchasing of shares signifies
the increase in value of remaining shares, thus boosting the potential of higher returns for investors and shareholders.
Debt
As of May 31, 2016, Nike has a total debt outstanding of $9.14 billion, an
increase of 2.8% YoY from $8.89 billion in FY 2015. The change in
Nike’s total debt illustrates the rise of long-term debt as the company
sold more 10- and 30-year corporate bonds, thus increasing from $1.08
billion in FY 2015 to $2.01 billion. Short-term debt, on the other hand,
eventually decreased from $6.33 billion in FY 2015 to $5.36 billion. Nike
has debt principle payments of $500, $1000, $500, $1000, and $500
million due in 2023, 2026, 2043, 2045, and 2046 respectively. The
company also has a $2 billion revolver expiring in 2020. Overall, its Debt
to Equity (D/E) ratio holds at 74.5% as of FY 2016, along with the S&P
credit rating of AA-, well above investment grade.
VALUATION
Peer Group Analysis
The competitor gaining the most ground as of 2015 is Under Armour. The company is actively pursuing lucrative U.S.
sponsorship deals similar to Nike’s, giving it a growing piece of market revenue. In Europe, Adidas is developing new
products to compete head to head with the giant. Chinese companies Anta and Li Ning show a steady increase in sales
within China. Nike's goal is to grow its annual revenues to $50 billion by 2020. It intends to accomplish this by
significantly increasing its direct sales and e-commerce revenues in developed markets. The company also sees significant
growth opportunities in China and in its women-focused product lines.
Adidas expects to grow its top-line revenue by 15% annually through 2020. It plans to create this growth through
investments to increase its speed of new products to market, which will allow the company to adapt more quickly. It also
intends to invest strategically in marketing in growing urban cities across the globe, as the company recognizes the
movement of population, particularly younger and more athletic segments of the population, to urban areas. The
company boasts a market capitalization approaching $19 billion and trailing 12-month revenues over $16 billion. The
stock ended 2015 priced around $48 per share and with a price-to-earnings (P/E) ratio just over 8. The stock ended
2015 near its 52-week high, which was approximately $50 per share. It also yields a dividend around 1.8%.
Under Armour has a market capitalization around $15.5 billion and trailing 12-month revenues of $3.6 billion. The
stock ended 2015 trading around $80 per share with a P/E ratio of approximately 40. As a younger growth-phase
company, the stock does not currently pay a dividend. the company has consistently found ways to innovate products
that penetrate mature markets. It tends to appeal to younger market segments, and it often prices its products at a
premium for its perceived quality of innovative materials and designs.

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Undervaluation
Nike, Inc. is currently trading at 19.5% discount to the company’s average three-year forward P/E multiple of 24.21x. In
Q1 of FY 2016, Nike reported $9.1 billion in sales, a 8.3% YoY increase. Despite surpassing top line expectations,
investors began discounting Nike when it reported single-digit growth for future orders in Q1 of FY 2016. Although
sales were impressive, many analysts were concerned with Nike’s ‘future order’ numbers. Future orders are a Nike-
invented system that gets distributors to agree to future contracts for the sale of products before Nike ships it. Those
numbers were down to 5% growth worldwide and 1% in North America YoY. Analysts believe these numbers indicate
short-term growth within the company. The primary reason future orders are down being due to Nike’s decreasing
market share within footwear and apparel to competitors like Under Armour, Adidas and Lululemon Athletica Inc.
Future orders figures serve to be misleading and outdated as it is just one of many revenue streams for Nike and
therefore Nike has decided to stop reporting it after this quarter. Future orders do not take into account Nike’s direct-to-
consumer sales. The contribution from direct-to-consumer sales has been steadily rising over the past few quarters,
making up 24% of the Nike brand’s revenue in Q1 & Q2 of FY16, compared to 22% in FY15. We believe that with the
news that Nike will no longer report “future orders” this will keep analyst more optimistic about short term growth. The
combination of our valuation methodologies, strong Q1 earning results and the attractive growth of both e-commerce
and China sales solidifies our opinion that Nike is a value opportunity with favorable growth prospects.
Fair Value Calculations
To calculate a fair target price, we used two different valuation multiples/methodologies to see the various ranges of
target prices. Our sector calculated our fair value estimates using forward P/E and historical EV/EBITDA multiples.
Using consensus NTM EPS of $2.37 estimates with an average three-year forward P/E multiple of 24.21x we calculated
a fair value estimate of $57.38. Using consensus LTM EBITDA estimates of $13,192 million with an average one-year
historical EV/EBITDA multiple of 19.98x we calculated the fair value estimate of 56.27$. Our sector decided to derive
our target price using the company’s average three-year forward P/E multiple of 24.21x, which calculates a fair value of
$57.38, implying Nike Inc. is trading 18.21% below its intrinsic value.

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APPENDIX
Exhibit I: Three-year price graph
Exhibit II: Three-year historical and forward P/E

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Exhibit III: Three-year historical and forward EV/EBITDA

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DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the author’s opinions. The writer does not own any
Nike stock.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in “real-world” principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Fund’s goals are threefold:
 Provide students with hands-on investment management experience
 Enable students to work in a team-based setting in consultation with investment professionals.
 Connect student participants with nationally recognized money managers and financial institutions
Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.