Nike Stock: We Cut Fair Value Estimate by 44% as Competition Intensifies

Key Morningstar Metrics for Nike

• Fair Value Estimate
  : $52.50
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

Competition and its own missteps have adversely affected Nike NKE over the past three fiscal years. With its restructuring ongoing, the firm anticipates a high-single-digit sales decline in fiscal 2027.

The bottom line: We downgrade our Morningstar Economic Moat Rating on Nike to narrow from wide and our Morningstar Capital Allocation Rating to Standard from Exemplary. We cut our fair value estimate to $52.50 per share from $94 (prior to placing under review) after reducing near- and long-term financial expectations.

• We still view Nike’s shares as attractive. New entrants hurt results, but Nike remains the sportswear leader with pricing power and solid intangible assets. We think the valuation fails to account for its recovery prospects that are underpinned by marketing and product advantages.
• Our fair value cut is based on reduced expectations for sales growth and margins in all regions, with small impact from the change in our moat rating.

Key stats: Nike faces a challenging near-term demand environment as it cleans up its inventory—we anticipate fiscal 2027 will be another tough year. We forecast an 8% sales decline (down from 2% prior), a 5.9% operating margin (6.8%), and $1.16 in EPS ($1.69).

• With more competition in sportswear, we assume a 3% compound average annual sales growth rate, down from 5% previously, over the next decade. Our updated assumption is roughly in line with expected market growth.
• Over the next decade, we forecast Nike’s operating margin will recover to nearly 14%. It is investing in its brand by accelerating the pace of technical innovation, operating a faster supply chain, selling more through company-owned channels, and investing in sports sponsorships.

Between the lines: While we still forecast returns on invested capital above weighted average cost of capital (9%), investment returns weakened and share buybacks are on hold, so we lower our Capital Allocation Rating. We believe the dividend (yield over 4%) will continue to be paid.