A Portfolio Manager's Analysis of Nike Inc.

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NTRODUCTION:

A portfolio manager, Kimi working for a large cap fund company called NorthPoint Group, had a difficult decision to make while looking at Nike Inc. financials: whether Kimi should buy Nike shares or not for the fund Group she was working for. Kimi needed to consider all aspects of Nike Inc. financial position. On July 28,2011 Nike Inc. held a analyst’s meeting to disclose their fiscal year 2001 as well as to revitalize the company who wasn’t performing well. Thus, the meeting showed that Nike Inc. experienced some difficulties during the past years. First, Nike Inc. revenues have reached a plateau since 1997 of $9 billion and its net income has decreased from $800 million to $520 million. Also, it showed that Nike Inc. market share for their US athletic shoes had decreased from 48% in 1997 to 42% in 2000, their supply chain systems wasn’t efficient enough and a strong dollar has drove the company’s profitability/revenue down.

During Nike Inc. meeting, it was decided that the company could increase revenue by producing more athletic shoes products for the mid-price segment as well as developing their apparel segment and getting more control on their expenses. The analysts projected a long-term revenue growth target at 8-10% and earnings-growth target above 15%.

Kimi looked at all the reports from the July 28 meeting but couldn’t find a clear recommendation to make a clear decision. Thus, she decided to make her on discounted cash flow forecast in order to submit a clear decision to her fund. She also conducted a sensitivity analysis that showed that Nike Inc. was undervalued at discount rates below 11.17%.

Kimi was running out of time since she had an important meeting to held and needed to calculate Nike Inc. ...

... middle of paper ...

...$37).

Recommendation

In conclusion, since Nike Inc. is overvalued we advise Kimi not to buy market share for her large cap fund company, NorthPoint. The stock price needs to be equal or almost equal to its value in order for Kimi to get Nike Inc. market share and add the company to NorthPoint portfolio. The stock market is very volatile, therefore, Kimi should wait and see if the stock price is neither undervalued nor overvalued. Moreover, Nike Inc. is a very promising company for the upcoming years since during their meeting, management said that they are going to boost revenues, invest in the athletic shoe items for the mid price segment and push its apparel line. All those measure could boost the stock market price for the future, making it more appealing for Kimi’s large cap fun and bringing the stock price to be valued at its fair price.

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