Nike: Dividend Stock Analysis

| About: Nike Inc. (NKE)

Linked here (PDF) is a detailed quantitative analysis of Nike, Inc. (NYSE:NKE). Below are some highlights from the above-linked analysis:

Company Description: Nike, Inc. is the world's leading designer and marketer of high-quality athletic footwear, athletic apparel, and accessories.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page 2 of the above-linked PDF for a detailed description):

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number

NKE is trading at a premium to all four valuations above. The stock is trading at a 9.2% premium to its calculated fair value of $48.41. NKE did not earn any Stars in this section.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics (see page 2 of the PDF for a detailed description):

  1. Free Cash Flow Payout
  2. Debt to Total Capital
  3. Key Metrics
  4. Dividend Growth Rate
  5. Years of Div. Growth
  6. Rolling Four-Year Div. > 15%

NKE earned two Stars in this section for Nos. 2 and 3 above. The stock earned a Star as a result of its most recent debt-to-total capital being less than 45%. NKE earned a Star for having an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1984, and has increased its dividend payments for 11 consecutive years.

Dividend Income Vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high-yield MMA. Two items are considered in this section (see page 2 of the PDF for a detailed description):

  1. NPV MMA Diff.
  2. Years to > MMA

NKE earned a Star in this section for its NPV MMA Diff. of the $6,088. This amount is in excess of the $2,400 target I look for in a stock that has increased dividends as long as NKE has. If NKE grows its dividend at 16.1% per year, it will take one year to equal a MMA yielding an estimated 20-year average rate of 2.54%. NKE earned a check for the key metric Years to >MMA since its one year is less than the five-year target.

Memberships and Peers: NKE is a member of the S&P 500 a member of the Broad Dividend Achievers Index. The company's peer group includes Crocs, Inc. (NASDAQ:CROX), with a 0.0% yield; Deckers Outdoor Corporation (NASDAQ:DECK), with a 0.0% yield; and Wolverine World Wide, Inc. (NYSE:WWW), with a 1.2% yield.

Conclusion: NKE did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section, and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks NKE as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $77.95 before NKE's NPV MMA Differential increased to the $2,400 minimum that I look for in a stock with 11 years of consecutive dividend increases. At that price the stock would yield 1.54%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,400 NPV MMA Differential, the calculated rate is 12.7%. This dividend growth rate is well below the 16.1% used in this analysis, thus providing a margin of safety. NKE has a risk rating of 1.75, which classifies it as a medium-risk stock.

NKE is the largest and most dominant player in the athletic footwear and apparel category. Despite increasing global competition and weak consumer spending in the U.S. and Europe, the company enjoys strong financial and operating metrics largely the result of its dominant brand. NKE's moat is built on superior product development, globally recognized brands, economies of scale, entrenched sponsorships, and a solid foothold in several key emerging markets, including a growing market penetration in China.

Recent improvement in futures orders, along with the firm's cost-containment efforts, should lead to higher operating margins. NKE is currently trading above my calculated fair value of $48.41 and its yield is below my minimum, so I will remain on the sidelines for now.

Disclosure: At the time of this writing, I held no position in NKE (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock, you should do your own research and reach your own conclusion. See my full disclaimer for more information.

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Tagged: , , , Textile - Apparel Footwear & Accessories
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