Mark Riddix

Nike's Preemptive Job Cuts

Good question. In a normailized earnings environment Nike's shares trade with a multiple of 18. The shares have traded with a multiple of just under 13 over the past year. The industry average is 9.5 but Nike has a higher ROE, ROA, PM than anyone else in the industry so Nike does warrant a higher multiple. You could conservatively assign Nike a multiple of 11.

Nike has historically been able to grow EPS by 12.9%. If the economy stabilizes over the next two years and Nike can resume its earnings growth then I would expect the company to conservatively grow annual earnings at 8.5% in 2010 and 2011. This would place EPS at about $4.50 for FY 2011 and $4.88 for FY 2012. If you take $4.88 EPS x 11 PE then Nike is easily a $50 stock. These numbers are based on a worst case scenario. If Nike returns to its historical PE over time then this is easily a $90 stock.