NIKE, INC. Ticker Symbol: NKE (NYSE)Sector: Consumer Cyclical Industry: Footwear

FUNCTION:

NIKE, Inc. is engaged in the design, development and worldwide marketing of footwear, apparel, equipment and accessory products. It sells its products to approximately 18,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries in nearly 200 countries. NIKE's athletic footwear products are designed for specific athletic use, although some of its products are worn for casual or leisure purposes. The Company creates designs for men, women and children. Running, basketball, children's, cross-training and women's shoes are the Company's top-selling product categories. NIKE also markets shoes designed for outdoor activities, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities, hiking and other athletic and recreational uses. NIKE sells active sports apparel that covers most of these categories, athletically inspired lifestyle apparel and others.

FINANCIAL SNAPSHOT

Sales/Revenue: $10,697,000,000 (TTM)

Market Capitalization: $16,613,750,000

Industry Ranked: Number One (Market Capitalization) Number One (Sales)

Fundamental Analysis:

A- Equity Valuation

Ratio Company Industry Sector Market Comparison DDM $6.621 Based on the DDM, NIKE’s

stock intrinsic value is $6.62. NIKE’s stock is presently trading at $63.90. This would suggest that the price of NIKE’s stock is significantly overvalued compared to its intrinsic value.

P/E 21.55 20.33 19.16 24.79 P/Eco>P/EInd and P/ESec

NIKE’s P/E Ratio is slightly higher than the industry and the sector indicating that the company is slightly overvalued.

PEG 7.81 7.08 3.07 3.73 PEGco > PEGInd and PEGSec.

NIKE is overvalued.PSR 1.55 1.37 1.15 3.43 PRSco > PSRInd and PSRSec

NIKE’s PSR is less than 3, indicating the company is undervalued.

P/B 3.94 3.56 3.39 4.28 PBco>1 which indicates that the company is overvalued.

Beta 0.72 0.75 1.03 1.00 Betaco < 1. This stock is less risky compared to stocks in this industry and sector.

Conclusion of Equity Valuations:

NIKE’s P/E, PSR and P/B of 21.55, 1.55, and 3.94 are quite similar to the averages of its

industry and sector. Hence, NIKE can be considered to be fairly valued. However, based

on the DDM model, NIKE’s stock price of $63.90 is significantly overvalued compared

to its intrinsic value of $6.62.

1 Do = 0.56 Growth (5 year) = 0.0874 Ks = 12% V = $6.62

B- Financial Strength Analysis

Category Ratio Company Industry Sector Market Comparison1-GROWTH RATE

5 years Growth of Sales

2.29% 4.19% 8.14% 9.72% The sales growth of NIKE is lower compared to the industry and sector averages.

5 years Growth of EPS

15.34% 14.80% 6.01% 10.38% The EPS growth of NIKE is higher compared to the industry and sector averages.

Growth of Sales

3 Year Trend Analysis

0.0%

5.0%

10.0%

15.0%

2000 2001 2002

Year

5 Ye

ar S

ales

Gro

wth

NikeIndustry

Interpretation:

NIKE’s 5 year sales growth has declined substantially from 2000 to 2002. In 2002, its 5 year sales growth was lower than its industry average.

Growth of EPS

3 Year Trend Analysis

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2000 2001 2002

Year

5 Ye

ar G

row

th o

f EPS

NikeIndustry

Interpretation:

NIKE’s 5 year EPS growth has been on a downward trend, and its 2002 figure was in negative territory. Moreover, its industry average was much higher than NIKE’s 5 year EPS growth in 2002.

Category Ratio Company Industry Sector Market Comparison2-PROFITABILITY

Operating Margin

13.81% 12.52% 11.03% 18.91% The Operating Profit margin of NIKE is higher than the industry and sector averages.

Net Profit Margin

7.18% 6.64% 4.79% 11.73% The Net Profit margin of NIKE is higher than the industry and sector averages.

Operating Margin

3 Year Trend Analysis

9.8%10.0%10.2%10.4%10.6%10.8%11.0%

2000 2001 2002

Year

Ope

ratin

g M

argi

n

NikeIndustry

Interpretation: This chart shows NIKE’s operating margin was higher than the industry average in 2002. In 2002, NIKE’s operating margin rebounded from a decline it experienced in 2001.

Net Profit Margin

3 Year Trend Analysis

5.8%6.0%6.2%6.4%6.6%6.8%

2000 2001 2002

Year

Net M

argi

n

Nike

Industry

Interpretation:

After a decline in net margin for NIKE in 2001, its net margin increased substantially in 2002, and is close to its industry average.

Category Ratio Company Industry Sector Market Comparison3-MANAGEMENTEFFECTIVENESS

ROI 16.71% 16.12% 8.49% 9.64% The return on investment of NIKE is slightly higher than the industry average but almost twice its sector average.

ROE 20.12% 19.15% 16.12% 17.86% The return on equity of NIKE is higher than the industry and sector averages.

Return on Equity

3 Year Trend Analysis

17.0%17.5%18.0%18.5%19.0%19.5%

2000 2001 2002

Year

ROE Nike

Industry

Interpretation:

NIKE’s ROE has been stagnant from 2000 to 2002, and its ROE was lower than the industry average in 2002.

Category Ratio Company Industry Sector Market Comparison4-EFFICIENCY RATIO

Inventory Turnover

4.37x 4.41x 9.25x 9.96x The inventory turnover of NIKE is lower than the industry and sector averages. This indicates that NIKE inventory turnover is slower compared to those in its industry and sector.

Asset Turnover

1.67x 1.76x 1.19x 0.93x The asset turnover of NIKE is lower than the industry average but higher than the sector average. This indicates that the company does not utilize its assets as well as those in its industry but they do utilize its assets better if compared to the sector.

Inventory Turnover

3 Year Trend Analysis

3.83.94.04.14.24.34.4

2000 2001 2002

Year

Inve

ntor

y Tu

rnov

er

NikeIndustry

Interpretation:

After declining slightly in 2001, there was a sharp upturn in NIKE’s inventory turnover in 2002.

Asset Turnover

3 Year Trend Analysis

1.51.61.61.71.71.81.8

2000 2001 2002

Year

Asse

t Tur

nove

r

NikeIndustry

Interpretation:

NIKE’s asset turnover was very flat from 2000 to 2002. Moreover, its asset turnover was lower than its industry average in 2002.

Category Ratio Company Industry Sector Market Comparison5- DEBT RATIO

Total Debt/Equity

0.23x 0.22x 4.03x 0.98x The debt/equity ratio of NIKE is comparable to its industry average. This indicates that NIKE is as leveraged as those in its industry.

However, the debt/equity ratio of NIKE is lower than its sector average, indicating that NIKE is not as leveraged as those in its industry.

Interest Coverage

28.54x 25.33x 8.68x 12.96x The interest coverage ratio of NIKE is higher than the industry and sector averages. This indicates that NIKE can meet its fixed obligations much better than those in its industry and sector.

Debt/Equity

3 Year Trend Analysis

0.000.050.100.150.200.25

2000 2001 2002

Year

Tota

l Deb

t/Tot

al E

quity

NikeIndustry

Interpretation:

NIKE’s debt to equity ratio has increased in 2002, after a decline in 2001. However, NIKE is still below its industry average as far as its leverage is concerned.

Category Ratio Company Industry Sector Market Comparison

6-LIQUIDITY RATIO

Quick Ratio

1.52x 1.76x 1.26x 1.26x The quick ratio of NIKE is lower than the industry average, but higher than its sector average. This indicates that NIKE is less liquid than those in its industry, but it is more liquid than those in its sector.

Current Ratio

2.48x 2.94x 2.16x 1.76x The current ratio of NIKE is higher than the sector averages, but lower than the industry average. This indicates that NIKE is more liquid than those in its sector, but it is less liquid than those in its industry.

Quick Ratio

3 Year Trend Analysis

0.000.501.001.502.00

2000 2001 2002

Year

Qui

ck R

atio

NikeIndustry

Interpretation:

NIKE’s quick ratio has been increasing steadily from 2000 to 2002 although its figure in 2002 was still lower than its industry average.

Current Ratio

3 Year Trend Analysis

0.001.002.003.00

4.00

2000 2001 2002

Year

Curr

ent R

atio

NikeIndustry

Interpretation:

The current ratio of NIKE has been slowly increasing from 2000 to 2002. However, its current ratio in 2002 was slightly lower than its industry average.

Conclusion of Financial Strength Analysis:

NIKE scores better than the industry and sector averages in the following factors (twelve

trailing months): 5 year EPS growth (15.34%), operating margin (13.81%), ROI

(16.71%), ROE (20.12%), and interest coverage (28.54%) ratios. NIKE is a world leader

in footwear and proves to be very competitive within its industry and its sector posting

results that are slightly higher than its industry and sector averages in several areas.

Technical Analysis:

1-Relative Strength Index:

The Relative Strength Index ("RSI") is a popular oscillator. The name "Relative

Strength Index" is slightly misleading as the RSI does not compare the relative strength

of two securities, but rather the internal strength of a single security. The RSI is a price-

following oscillator that ranges between 0 and 100. A popular method of analyzing the

RSI is to look for a divergence in which the security is making a new high, but the RSI is

failing to surpass its previous high. This divergence is an indication of an impending

reversal. When the RSI then turns down and falls below its most recent trough, it is said

to have completed a "failure swing." The failure swing is considered a confirmation of

the impending reversal. Movements above 70 are considered overbought, while an

oversold condition would be a move under 30.

Figure 1: Nike _1year price chart

Interpretation:

NIKE’s RSI is at the 60 level. This would indicate a HOLD position for NIKE.

Figure 2: Nike compared to the Market_1year price chart

Interpretation:

In figure 2, NIKE’s price movement has quite similarly followed the trend of the market the last 12 months. However, they are currently outperforming the market. Although the market trend seems to be taking an upward turn, NIKE stock seems to be overbought. This verifies that it is not a good time to buy.

Figure 3: Nike compared to Puma

1year price chart

Interpretation:

Figure 3 illustrates that PUMA has outperformed NIKE for the last 12 months. I will still

maintain a HOLD position on NIKE.

2-Bollinger Bands:

Bollinger Bands are similar to moving average envelopes. The difference between

Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and

below a moving average, whereas Bollinger Bands are plotted at standard deviation

levels above and below a moving average. Since standard deviation is a measure of

volatility, the bands are self-adjusting: widening during volatile markets and contracting

during calmer periods.Bollinger Bands are usually displayed on top of security prices, but

they can be displayed on an indicator. These comments refer to bands displayed on

prices. As with moving average envelopes, the basic interpretation of Bollinger Bands is

that prices tend to stay within the upper- and lower-band. The distinctive characteristic of

Bollinger Bands is that the spacing between the bands varies based on the volatility of the

prices. During periods of extreme price changes (i.e., high volatility), the bands widen to

become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands

narrow to contain prices.

Figure 1: Nike _1year price chart

Interpretation:

NIKE currently falls within the Bollinger Band. This indicates that the stock is neither positively nor negatively extended. Since the Bollinger Band widths are not very wide, this indicates that there is not much volatility in the price of the stock. However, since NIKE falls within the Bollinger Band, this indicates a time to HOLD the stock since there is great potential for price growth.

Figure 2: Nike compared to the Market

1year price chart

_

Interpretation:

NIKE and the market seem to have a close historical trend. Recent performance indicates

that the market is heading upwards. This indicates that it is opportune time to BUY

NIKE. However, I will still maintain a HOLD on the NIKE stock.

Figure 3: Nike compared to Puma_1year price chart

Interpretation:

Figure 3 shows that NIKE’s stock is not as volatile as PUMA’s stock. Due to the fact that NIKE’s stock presently falls within the Bollinger Band, this indicates a time to HOLD the stock since there is great potential for price growth.

3- Simple Moving Average:

A Moving Average is an indicator that shows the average value of a security's price over

a period of time. When calculating a moving average, a mathematical analysis of the

security's average value over a predetermined time period is made. As the security's price

changes, its average price moves up or down.

There are five popular types of moving averages: simple (also referred to as arithmetic),

exponential, triangular, variable, and weighted. Moving averages can be calculated on

any data series including a security's open, high, low, close, volume, or another indicator.

A moving average of another moving average is also common.

The only significant difference between the various types of moving averages is the

weight assigned to the most recent data. Simple moving averages apply equal weight to

the prices. Exponential and weighted averages apply more weight to recent prices.

Triangular averages apply more weight to prices in the middle of the time period. And

variable moving averages change the weighting based on the volatility of prices.

The most popular method of interpreting a moving average is to compare the relationship

between a moving average of the security's price with the security's price itself. A buy

signal is generated when the security's price rises above its moving average and a sell

signal is generated when the security's price falls below its moving average.

Figure 1: Nike _1year price chart

Interpretation:

Since the closing prices of NIKE in the last few days are slightly above the SMA line,

there is an indication to BUY at this time.

Figure 2: Nike compared to the Market_1year price chart

Interpretation:

A BUY signal was triggered when the market average was heading upwards. Moreover,

NIKE’s stock has been hovering above the SMA line in the last few trading sessions.

Figure 3: Nike compared to Puma_1year price chart

Interpretation:

It is an opportune time to BUY NIKE’s stock because its stock is trading above the SMA line, and its stock has not appreciated much compared to PUMA’s stock.

4-Volume Analysis:

The Cumulative Volume Index ("CVI") is a market momentum indicator that shows

whether money is flowing into or out of the stock market. It is calculated by subtracting

the volume of declining stocks from the volume of advancing stocks, and then adding this

value to a running total.

The CVI and OBV (On Balance Volume) are quite similar. Many computer programs and

investors incorrectly call the OBV the CVI. OBV, like the CVI, was designed to show if

volume is flowing into or out of the market. But, because up-volume and down-volume

are not available for individual stocks, OBV assumes that all volume is up-volume when

the stock closes higher and that all volume is down-volume when the stock closes lower.

The CVI does not have to make this large assumption, because it can use the actual up-

and down-volume for the New York Stock Exchange.

One useful method of interpreting the CVI is to look at its overall trend. The CVI shows

whether there has been more up-volume or down-volume and how long the current

volume trend has been in place. Also, look for divergences that develop between the CVI

and a market index. For example, is the market index making a new high while the CVI

fails to reach new highs? If so, it is probable that the market will correct to confirm the

underlying story told by the CVI.

Figure 1: NIKE_1year price chart

Interpretation:

There was heavy trading on NIKE’s stock in the months of July and September. The volume has since decreased substantially. Place a HOLD on NIKE.

Figure 2: NIKE compared to the market _1year price chart

Interpretation:

In figure 2, NIKE stock seems to be overbought in relation to the market index. As a

contrarian, it is better to HOLD on to NIKE stock since it is a bit overvalued at this point.

The volume index of NIKE is not rising in relation to the Market index. This indicates

that the number of investors of the stock is decreasing. This verifies that it is not the best

time to buy the stock because the demand for the stock is not strong. Place a HOLD on

the stock.

Figure 3: NIKE compared to PUMA _1year price chart

Interpretation:

The price movement of NIKE’s stock in the last six months suggests that they have

underperformed in comparison to PUMA’s stock. There seems to be a strong resistance

in the upward momentum of NIKE’s stock. NIKE’s volume has been quite inconsistent in

the last 6 months. There was a huge spike in volume at the end of June and in the middle

of September. Unless there is a substantial increase in volume, I would place a HOLD on

NIKE.

Conclusion of the Technical Analysis:Out of the four technical indicators, 3 have indicated a HOLD on NIKE and 1 has

indicated a BUY on NIKE. Final technical analysis: Place a HOLD on NIKE.

Leading Economic Indicator Analysis

0

2

4

6

8

1Q 2Q 3Q 4Q

Gross Domestic Product (% change)

20022003

Interpretation

The US economy seems to be recovering from its slowdown. The 3rd Quarter GDP

expanded at a 7.2% rate.

-30-20-10

0102030

1Q 2Q 3Q 4Q

Earnings Growth Rate

20012002

2003

Interpretation

The forecast for the stock market in the next few months is good because companies have

reported 7 consecutive earnings growth quarters. In third quarter of this year, companies

on average reported a whopping earnings growth rate of 21.8%.

Job Growth (in thousands)

-500-400-300-200-100

0100200

J F M A M J J A S O N D

JobGrowth,2001JobGrowth,2002JobGrowth,2003

Interpretation

Job growth in 2003 is very poor. However, there is an indication that the job market is

slowly improving. Job growth is extremely important for the economy and subsequently

the stock market because two thirds of the United States GDP comprised of consumers

expenditure.

Consumer Confidence

020406080

100120140

J F M A M J J A S O N D

ConsumerConfidence,2001ConsumerConfidence,2002ConsumerConfidence,2003

Interpretation

Consumer confidence is important to the US economy because it accounts for about 66%

of its economic activity. Consumer confidence in 2003 is still weak. Based on the graph

above, consumer confidence will likely remain weak unless job growth improves

significantly.

-2-1.5

-1-0.5

00.5

11.5

2

J F M A M J J A S O N D

PPI, 2002 (%change)PPI, 2003 (%change)

Interpretation

The PPI for 2001 and 2003 has been very low. Based on the graph above, the PPI is

likely to be in the range of 0 and 1 in the near future.

-0.4

-0.2

0

0.2

0.4

0.6

0.8

J F M A M J J A S O N D

CPI, 2002 (%change)CPI, 2003 (%change)

Interpretation

The CPI for 2002 and 2003 has been very low. It is projected that the CPI will remain

low for the next 6 months. The Federal Reserve will not raise the interest rate if the level

of inflation is low. A higher interest rate will have a negative effect on the stock market.

Conclusion of economic indicator analysis:Based on the six graphs above, the US economy has showed signs of growth and the

stock market might experience a mild rally due to these factors. Companies are beginning

to report positive earnings, and profits continue to improve. Another positive side is the

low inflation rate judging by the PPI and CPI numbers. The US economy is anticipated to

improve in the coming months.

Industry Analysis

10 Best Performing Industries

 Industry  % Change One Month

Packaging & Containers 14.6%

Sporting Goods Stores 14.4%

Semiconductor Equipment & Materials 14.3%

Textile - Apparel Clothing 13.9%

Processing Systems & Products 13.9%

Diagnostic Substances 13.7%

Jewelry Stores 13.6%

Computer Based Systems 13.1%

Copper 12.5%

Air Services, Other 12.0%

10 Worst Performing Industries

 Industry  % Change One Month

Drugs - Generic -13.1%

Sporting Activities -13.1%

Drug Delivery -11.0%

General Entertainment -7.8%

Long Distance Carriers -6.7%

REIT - Hotel/Motel -6.0%

Oil & Gas Equipment & Services -5.4%

Healthcare Information Services -5.3%

Grocery Stores -4.9%

Appliances -4.7%

Conclusion of industry analysis:With the general improvement in the economy, the footwear industry is projected to

benefit from the upside in the economy because people will have more disposable income

to spend on non durable goods which is basically the footwear industry.

RECOMMENDATION:Based on NIKE’s fundamental analysis, it is not a good to buy this stock aggressively.

Based on a long term investment strategy, it is better to ACCUMULATE NIKE stock

because of its potential for further growth and expansion, and also due to its cyclical

nature. The technical analysis indicates that it is a good time to HOLD the stock at this

point of time. I would recommend a “HOLD / ACCUMULATE” on NIKE stock.