Morningstars Fair Value Estimat: 82 USD
Investeringsanalyse, Paul Swinand, 13-04-2015
Nike is the largest, most dominant competitor in athletic footwear, apparel, and equipment--a consumer category that it has helped define and revolutionize over the past four-plus decades. Although footwear and apparel are competitive businesses, few companies are as successful as Nike. Because of its size, brand image, and related competitive advantages, we expect Nike to maintain its market leadership, high returns on capital, and wide moat rating.
Product innovation, unique marketing, and balanced distribution strategies remain key to Nike's success. Innovations in shoe design and production technologies such as Flyknit could drive higher long-term margins. Equally important, the shoes' innovative knit designs will support Nike's image of being a market leader. Although the firm develops products across a wide range of price points, its competency in higher-end performance footwear and apparel is unmatched. The firm's tremendous marketing resources, coupled with endorsements from widely recognized athletes, add long-term credibility to Nike's many innovations. We believe this is a key reason that new product launches in running shoes, marquee basketball products, and performance apparel continue to outperform the market. In addition, we see long-term growth opportunities in global soccer, where Nike has been steadily gaining share and where developing markets will continue to increase average price and performance product penetration. Nike's emphasis on technical products increases profitability and minimizes product overlap with other footwear and apparel manufacturers, resulting in industry-leading margins.
International expansion will be the firm's primary long-run growth engine, but North America continues to post surprising revenue gains. We see considerable opportunities for long-run expansion in China, specifically, where the brand is already a leader with revenue of more than $2.6 billion in fiscal 2014. We believe Nike is a way to play emerging-market growth around the globe, as other middle-class consumers develop consumption habits around increasing participation in sports and using the international sports brands that star players display.
Bulls and bears say
Bulls say
- As one of the world's most widely recognized brands with innovative products, Nike prices at a premium. It routinely earns higher gross margins at wholesale than competitors.
- Nike's athletic products span footwear, apparel, and equipment over global geographies, channels and sports categories, mitigating risks from any particular product or market.
- Nike is important to major athletic retailers and as such has supplier power in the industry. Although retailers and Nike call themselves partners, history suggests consumers can switch retailers more readily than they will switch brands.
Bears say
- The global athletic footwear and apparel market is highly competitive and correlated to GDP growth. Even though Nike remains the market leader, it has a formidable competitor in adidas, which has historically held an advantage in soccer-dominated emerging markets.
- Economic downturns could hurt top- and bottom-line results as more frugal consumers shy away from Nike's premium-priced products.
- Nike is so large and has such a dominant share in many sports such as basketball and running that it is difficult to extrapolate current growth rates far into the future.
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