Nike Case Study
Nike Case Study
By Mark Colasurdo, Andrew McMullen, Jonathan Burd, Gaoxing Feng, and Jie Leng
Background:
Kimi Ford, a portfolio manager at North Point Group, is looking into the profitability of investing in the stocks of Nike for her fund that she manages. She is supposed to base her decision the company’s data which was disclosed in the 2001 fiscal reports. While Nike management had addressed several issues that are causing the decrease in market sales and stock price, management presented plans to improve and perform better. Nike revenue has been at a plateau since 1997 yet net income and market share were falling. Supply chain issues and the strong dollar negatively affected revenue too. Plans are in place to address top line growth and operating performance. To boost revenue, the company would develop more athletic shoes in the mid priced segment which has been overlooked by Nike in recent years. They also planned to push their apparel line which under strong leadership had performed very well to control expenses. Revenue growth targets are around 8-10% and earnings targets are above 15%. Analyst reactions were mixed as some of them thought this was too aggressive. Lehman Brothers recommended a strong buy while others expressed misgivings and recommended a hold. At this point, North Point Group decided to do their own analysis in order to decide if Nike shares should be purchased for the fund.
The weighted average cost of capital (WACC) is the rate that a company is expected to pay its debt and equity holders to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its owners, creditors, and other providers of capital or they will invest somewhere else. Companies raise money from many sources such as common and preferred equity, straight, convertible, and exchangeable debt, options, warrants, pension liabilities, executive stock options, governmental subsidies, and others. Different securities, which
By Mark Colasurdo, Andrew McMullen, Jonathan Burd, Gaoxing Feng, and Jie Leng
Background:
Kimi Ford, a portfolio manager at North Point Group, is looking into the profitability of investing in the stocks of Nike for her fund that she manages. She is supposed to base her decision the company’s data which was disclosed in the 2001 fiscal reports. While Nike management had addressed several issues that are causing the decrease in market sales and stock price, management presented plans to improve and perform better. Nike revenue has been at a plateau since 1997 yet net income and market share were falling. Supply chain issues and the strong dollar negatively affected revenue too. Plans are in place to address top line growth and operating performance. To boost revenue, the company would develop more athletic shoes in the mid priced segment which has been overlooked by Nike in recent years. They also planned to push their apparel line which under strong leadership had performed very well to control expenses. Revenue growth targets are around 8-10% and earnings targets are above 15%. Analyst reactions were mixed as some of them thought this was too aggressive. Lehman Brothers recommended a strong buy while others expressed misgivings and recommended a hold. At this point, North Point Group decided to do their own analysis in order to decide if Nike shares should be purchased for the fund.
The weighted average cost of capital (WACC) is the rate that a company is expected to pay its debt and equity holders to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its owners, creditors, and other providers of capital or they will invest somewhere else. Companies raise money from many sources such as common and preferred equity, straight, convertible, and exchangeable debt, options, warrants, pension liabilities, executive stock options, governmental subsidies, and others. Different securities, which