Step 1: Data Collection Please locate and record the following pieces of information using Yahool Finance. Though you may record the information below for now, it will eventually need to be transferred to the case study Excel document. Nike, Inc.'s Ticker Symbol: NKE (If you just begin typing the name of the company in Yahool Finance's search bar, Nike's ticker symbol should be provided.) Nike, Inc.'s Total Annual Revenue (Trailing 12 Months): 44. 5 billion This will be the starting point for our analysis, similar to the example in the Chapter 10 slides. Nike's most recent fiscal year ended May 31, 2022. We are actually performing our analysis as of the end of Nike's most recent fiscal quarter, which was February 28, 2023. Therefore, we will need the total revenue for Nike over the 12-month period ending February 28, 2023. A year for our analysis will essentially be beginning on March 1 and ending on the following February 28.1 T=0 for our analysis will effectively be february 28,2023. The easiest place to find this is in Yahool Finance, after typing in Nike's ticker symbol, click on "Financials", and on the income statement, locate "Total Revenue - TTM". "TTM" stands for "trailing twelve months" and will represent the total revenue from Nike's most recent 4 quarterly reports. Nike, Inc.'s Total Debt: 12.65 billion (This information can be found in the "Statistics" section of Yahoo! Finance. The item you are looking for is labelled "Total Debt (mrq)". MRQ stands for "most recent quarter".) 'Though it may seem easier to simply structure our analysis based upon Nike's fiscal year instead, this timing assumption will be necessary given that some of the other data points we will be palling from Yahoo! Finance are provided as of Nike's most reeent fiscal quarter. Nike, Inc.'s Total Cash: 8.704 billion (This information will be labelled "Total Cash (mrq)".) Nike, Inc.'s number of equity shares outstanding: 1.609 billon (This can also be found in the "Statistics" section under the "Share Statistics" heading.) Step 2: DCF Analysis Using the information gathered in Step 1, along with the assumptions outlined below, perform a DCF analysis on Nike, Inc. Your ultimate goal should be to arrive at an estimate for Nike's current share price (as of February 28, 2023). (As guidance, I have provided a similar analysis performed on one of Nike's competitors, Under Armour, Inc. with information taken from Yahoo! Finance for Under Armour's FY 2019) - Starting with your identified 2023 level of revenue (quarter-ending February 28, 2023), you expect that revenue will increase by 2.5% in 2024. You anticipate annual revenue growth will increase by . 6% per year to the long-run industry growth rate of 5.5% by 2029. Your lower than average expected growth for 2024 is a result of concerns you have about the overall health of the US economy, - You expect Nike's EBIT margin to be 13% of sales each year. - You expect any increase in net working capital requirements to be 10% of any annual increases in revenue. - You expect capital expenditures to equal depreciation expenses in each year. - Nike's effective corporate tax rate is 21%. - Nike's weighted average cost of capital (WACC) is 8.5%. Given the above information and what you have gathered in Step 1, perform a DCF analysis for Nike, Inc. Specifically: - Forecast Nike's FCF each year for 2024 to 2029 - Determine a terminal value for Nike's FCF from 2030 and beyond. - Determine Nike's Enterprise Value (as of the quarter ending 2/28/23) - Determine Nike's Total Equity Value (as of the quarter ending 2/28/23) - Determine Nike's current share price, given these assumptions (as of 2/28/23) At the very least, you are required to provide an input for any cell that is highlighted YELLOW in the provided Excel template. In terms of the timeline for this analysis, you are to assume that 2023 equates to t=0,2024 equates to t=1, and so on. Your valuation is taking place at t=0, which is effectively the quarter ending February 28, 2023. This differs from the Under Armour example I have provided. Under Armour and Nike do not share the same fiscal calendar. The Under Armour example was created using Fiscal Year-end 2019 information as a starting point. For Nike, you will be using quarter-ending February 28, 2023. Using the above assumptions from Steps 1 \& 2 as your base case, perform sensitivity/scenario analysis around the following inputs. Provide your responses in the appropriate spaces of your Nike DCF Analysis worksheet. Case 1 - Suppose you believe Nike's initial revenue growth rate in 2024 will be between 0% and 10% (with growth adjusting linearly to 5.5% by year 2029 ). What range of prices for Nike stock is consistent with these forecasts? Case 2 - Beginning again with your base case assumptions, suppose you believe Nike's initial EBIT margin (as a % of revenue) will be between 9% and 15% of revenue. What range of prices for Nike stock is consistent with these forecasts? Case 3 - Beginning again with your base case assumptions, you observe that similar companies in the apparel industry have WACCs ranging from 7.5% to 9.5%. What range of prices for Nike stock is consistent with these WACC forecasts? Case 4 - What range of stock prices is consistent if you vary the estimates in cases 13 simultaneously? Put another way, what is the range of stock prices you might expect if the worst/best case scenarios occur from each of the previous three cases simultaneously. Step 4: Valuation Using Method of Comparables As a means of double-checking your analysis, you will perform a quick check of your valuation of Nike using the Method of Comparables. Below are several other footwear and/or athletic apparel firms that operate in similar industries and areas to Nike: Deckers Outdoor Corporation Skechers, Inc. Lululemon Athletica, Inc. Question 1: Calculate the FORWARD P/E ratio for each of these firms using the closing stock price from April 21, 2023 and the forward earnings estimate (EPS) for what Yahool identifies as the "next year". Question 2: Using the average forward P/E ratio of these similar firms (equally weighted), along with the current average estimate of Nike's forward EPS (next year), what would you estimate to be the value of Nike stock? NIKE DCF Analysis CASE STUDY AUTHORS Free Cash Flow (FCF) Forecast NIKE Ticker Symbol: EBIT Margin (\% of Sales) Tax Rate \begin{tabular}{|l|l|} \hline STUDENT NAME & UIC NETID \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline \end{tabular} NWC Requirement (\% of Sales) in (S million) Year \begin{tabular}{l|l|l|l|l|l|l|l|} \hline 2023 & 2024 & 2025 & 2026 & 2027 & 2028 & 2029 \\ \hline \end{tabular} 1 Sales 2 Sales Growth vs. Prior Year 4 EBIT 6 Less: Income Tax 7 Plus: Depreciation 8 Less: CapEx 9 Less: Increase in NWC Free Cash Flow Terminal Value Analysis \begin{tabular}{l|l|} \hline 2030 FCF & \\ \hline WACC & \\ \hline Long-Term Growth Rate & \\ \hline 2029 Terminal Value Calculation & \\ \hline \end{tabular} You may make use of any formulas you'd like when filling in this table, but please do not insert/remove any cells, rows, and/or columns. Do not make any formatting changes to this sheet. TVM Calculation TVM Calculation Year PV at 2023 of Free Cash Flows Present Value of all Free Cash Flows (This value also equals Enterprise Value) Adjustments for Share Valuation (Information from Yahoo! Finance) \begin{tabular}{l|l|} \hline Cash Balance & \\ \hline Debt & \\ \hline Shares Outstanding & \\ \hline \end{tabular} \begin{tabular}{l|l|} \hline Total Equity Value & \\ \hline Equity Value Per Share & \\ \hline \end{tabular} \begin{tabular}{l|c|c|c|c|} \hline Step 4: Method of Comparables & Ticker & 4/21 Price & ForwardEPSEstimate & ForwardP/ERatio \\ \hline Deckers Outdoor Corporation & DECK & & & \\ \hline Skechers U.S.A. Inc. & SKX & & & \\ \hline Lululemon Athletica Inc. & LULU & & & \\ \hline \end{tabular} Average Industry Forward P/E Ratio NIKE Forward EPS Estimate Step 1: Data Collection Please locate and record the following pieces of information using Yahool Finance. Though you may record the information below for now, it will eventually need to be transferred to the case study Excel document. Nike, Inc.'s Ticker Symbol: NKE (If you just begin typing the name of the company in Yahool Finance's search bar, Nike's ticker symbol should be provided.) Nike, Inc.'s Total Annual Revenue (Trailing 12 Months): 44. 5 billion This will be the starting point for our analysis, similar to the example in the Chapter 10 slides. Nike's most recent fiscal year ended May 31, 2022. We are actually performing our analysis as of the end of Nike's most recent fiscal quarter, which was February 28, 2023. Therefore, we will need the total revenue for Nike over the 12-month period ending February 28, 2023. A year for our analysis will essentially be beginning on March 1 and ending on the following February 28.1 T=0 for our analysis will effectively be february 28,2023. The easiest place to find this is in Yahool Finance, after typing in Nike's ticker symbol, click on "Financials", and on the income statement, locate "Total Revenue - TTM". "TTM" stands for "trailing twelve months" and will represent the total revenue from Nike's most recent 4 quarterly reports. Nike, Inc.'s Total Debt: 12.65 billion (This information can be found in the "Statistics" section of Yahoo! Finance. The item you are looking for is labelled "Total Debt (mrq)". MRQ stands for "most recent quarter".) 'Though it may seem easier to simply structure our analysis based upon Nike's fiscal year instead, this timing assumption will be necessary given that some of the other data points we will be palling from Yahoo! Finance are provided as of Nike's most reeent fiscal quarter. Nike, Inc.'s Total Cash: 8.704 billion (This information will be labelled "Total Cash (mrq)".) Nike, Inc.'s number of equity shares outstanding: 1.609 billon (This can also be found in the "Statistics" section under the "Share Statistics" heading.) Step 2: DCF Analysis Using the information gathered in Step 1, along with the assumptions outlined below, perform a DCF analysis on Nike, Inc. Your ultimate goal should be to arrive at an estimate for Nike's current share price (as of February 28, 2023). (As guidance, I have provided a similar analysis performed on one of Nike's competitors, Under Armour, Inc. with information taken from Yahoo! Finance for Under Armour's FY 2019) - Starting with your identified 2023 level of revenue (quarter-ending February 28, 2023), you expect that revenue will increase by 2.5% in 2024. You anticipate annual revenue growth will increase by . 6% per year to the long-run industry growth rate of 5.5% by 2029. Your lower than average expected growth for 2024 is a result of concerns you have about the overall health of the US economy, - You expect Nike's EBIT margin to be 13% of sales each year. - You expect any increase in net working capital requirements to be 10% of any annual increases in revenue. - You expect capital expenditures to equal depreciation expenses in each year. - Nike's effective corporate tax rate is 21%. - Nike's weighted average cost of capital (WACC) is 8.5%. Given the above information and what you have gathered in Step 1, perform a DCF analysis for Nike, Inc. Specifically: - Forecast Nike's FCF each year for 2024 to 2029 - Determine a terminal value for Nike's FCF from 2030 and beyond. - Determine Nike's Enterprise Value (as of the quarter ending 2/28/23) - Determine Nike's Total Equity Value (as of the quarter ending 2/28/23) - Determine Nike's current share price, given these assumptions (as of 2/28/23) At the very least, you are required to provide an input for any cell that is highlighted YELLOW in the provided Excel template. In terms of the timeline for this analysis, you are to assume that 2023 equates to t=0,2024 equates to t=1, and so on. Your valuation is taking place at t=0, which is effectively the quarter ending February 28, 2023. This differs from the Under Armour example I have provided. Under Armour and Nike do not share the same fiscal calendar. The Under Armour example was created using Fiscal Year-end 2019 information as a starting point. For Nike, you will be using quarter-ending February 28, 2023. Using the above assumptions from Steps 1 \& 2 as your base case, perform sensitivity/scenario analysis around the following inputs. Provide your responses in the appropriate spaces of your Nike DCF Analysis worksheet. Case 1 - Suppose you believe Nike's initial revenue growth rate in 2024 will be between 0% and 10% (with growth adjusting linearly to 5.5% by year 2029 ). What range of prices for Nike stock is consistent with these forecasts? Case 2 - Beginning again with your base case assumptions, suppose you believe Nike's initial EBIT margin (as a % of revenue) will be between 9% and 15% of revenue. What range of prices for Nike stock is consistent with these forecasts? Case 3 - Beginning again with your base case assumptions, you observe that similar companies in the apparel industry have WACCs ranging from 7.5% to 9.5%. What range of prices for Nike stock is consistent with these WACC forecasts? Case 4 - What range of stock prices is consistent if you vary the estimates in cases 13 simultaneously? Put another way, what is the range of stock prices you might expect if the worst/best case scenarios occur from each of the previous three cases simultaneously. Step 4: Valuation Using Method of Comparables As a means of double-checking your analysis, you will perform a quick check of your valuation of Nike using the Method of Comparables. Below are several other footwear and/or athletic apparel firms that operate in similar industries and areas to Nike: Deckers Outdoor Corporation Skechers, Inc. Lululemon Athletica, Inc. Question 1: Calculate the FORWARD P/E ratio for each of these firms using the closing stock price from April 21, 2023 and the forward earnings estimate (EPS) for what Yahool identifies as the "next year". Question 2: Using the average forward P/E ratio of these similar firms (equally weighted), along with the current average estimate of Nike's forward EPS (next year), what would you estimate to be the value of Nike stock? NIKE DCF Analysis CASE STUDY AUTHORS Free Cash Flow (FCF) Forecast NIKE Ticker Symbol: EBIT Margin (\% of Sales) Tax Rate \begin{tabular}{|l|l|} \hline STUDENT NAME & UIC NETID \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline \end{tabular} NWC Requirement (\% of Sales) in (S million) Year \begin{tabular}{l|l|l|l|l|l|l|l|} \hline 2023 & 2024 & 2025 & 2026 & 2027 & 2028 & 2029 \\ \hline \end{tabular} 1 Sales 2 Sales Growth vs. Prior Year 4 EBIT 6 Less: Income Tax 7 Plus: Depreciation 8 Less: CapEx 9 Less: Increase in NWC Free Cash Flow Terminal Value Analysis \begin{tabular}{l|l|} \hline 2030 FCF & \\ \hline WACC & \\ \hline Long-Term Growth Rate & \\ \hline 2029 Terminal Value Calculation & \\ \hline \end{tabular} You may make use of any formulas you'd like when filling in this table, but please do not insert/remove any cells, rows, and/or columns. Do not make any formatting changes to this sheet. TVM Calculation TVM Calculation Year PV at 2023 of Free Cash Flows Present Value of all Free Cash Flows (This value also equals Enterprise Value) Adjustments for Share Valuation (Information from Yahoo! Finance) \begin{tabular}{l|l|} \hline Cash Balance & \\ \hline Debt & \\ \hline Shares Outstanding & \\ \hline \end{tabular} \begin{tabular}{l|l|} \hline Total Equity Value & \\ \hline Equity Value Per Share & \\ \hline \end{tabular} \begin{tabular}{l|c|c|c|c|} \hline Step 4: Method of Comparables & Ticker & 4/21 Price & ForwardEPSEstimate & ForwardP/ERatio \\ \hline Deckers Outdoor Corporation & DECK & & & \\ \hline Skechers U.S.A. Inc. & SKX & & & \\ \hline Lululemon Athletica Inc. & LULU & & & \\ \hline \end{tabular} Average Industry Forward P/E Ratio NIKE Forward EPS Estimate