NIKE, Inc. (NYSE: NKE) remains a compelling investment opportunity, with updated valuations indicating the stock is significantly undervalued, despite a challenging fiscal 2025, as per the latest earnings release. On June 26, 2025, NIKE reported its fiscal 2025 fourth quarter and full-year results, revealing a tough year marked by revenue declines and margin pressures. However, an intrinsic value analysis using the Buffett and McGrew Valuation Methods suggests that the stock’s closing price of $60.83, with a premarket surge to $69.28 (+6.72, +10.75%) on June 27, 2025, is well below its estimated fair value, earning it a “Screaming Buy” status.
Fiscal 2025 Earnings: A Mixed Picture
NIKE’s fiscal 2025 earnings, released on June 26, 2025, painted a picture of a company navigating significant headwinds. Full-year revenues dropped to $46.3 billion, a 10% decline on a reported basis (9% currency-neutral) compared to $51.4 billion in fiscal 2024. Fourth-quarter revenues fell 12% to $11.1 billion, driven by declines across all geographies. NIKE Direct revenues, a critical growth driver, slumped 13% to $18.8 billion for the year, with a 20% drop in NIKE Brand Digital sales, partially offset by flat performance in NIKE-owned stores. Wholesale revenues also declined 7% to $25.9 billion. The Converse brand, a NIKE subsidiary, saw a 19% revenue drop to $1.7 billion.
Gross margins faced significant pressure, declining 190 basis points to 42.7% for the year and 440 basis points to 40.3% in Q4, primarily due to higher discounts, unfavorable channel mix, and increased inventory obsolescence reserves. Net income for fiscal 2025 fell 44% to $3.2 billion, with diluted earnings per share (EPS) dropping 42% to $2.16. The fourth quarter was particularly weak, with net income plummeting 86% to $211 million and diluted EPS at $0.14. Despite these challenges, NIKE maintained strong shareholder returns, repurchasing 37.6 million shares for $3.0 billion and paying $2.3 billion in dividends, up 6% from the prior year, as part of its $18 billion share repurchase program.
New U.S.-China Trade Deal Adds Optimism
Recent developments in global trade have introduced a positive catalyst for NIKE’s outlook. Just days before the earnings release, the United States and China finalized a new trade deal, reducing tariffs and easing trade tensions that have previously impacted NIKE’s supply chain and market access in Greater China, a key region contributing $6.6 billion in fiscal 2025 revenues (down 13% year-over-year). This agreement is expected to stabilize sourcing costs and improve market conditions in China, where NIKE faced a 20% Q4 revenue decline. While the full impact remains to be seen, the trade deal provides greater certainty for NIKE’s operations, potentially supporting its “Win Now” initiatives and bolstering investor confidence, as reflected in the premarket surge to $69.28 on June 27, 2025.
Valuation Analysis: A “Screaming Buy”
Using the Buffett and McGrew Valuation Methods, NIKE’s intrinsic value was recalculated based on the trailing twelve months (TTM) free cash flow (FCF) as of February 28, 2025, which stood at $5.311 billion, adhering strictly to historical data without forward-looking assumptions, as required by the valuation model. For the Buffett Valuation Method, NIKE’s 3-year FCF compound annual growth rate (CAGR) of 22.25% (2022–2024) classifies it as a growth stock, prompting the use of a 10% constant growth rate for 10 years. With a discount rate of 8% and a perpetual growth rate of 2.5%, the total present value of future cash flows is $172.1 billion. Divided by 1,487.6 million shares outstanding (fiscal 2025 diluted shares), the intrinsic value per share is $115.66. Applying a 25% margin of safety, the target price is $86.75.
The McGrew Valuation Method uses a starting growth rate of 22.25%, declining linearly to 10% by Year 7, then holding steady. This yields a total present value of $244.6 billion, translating to an intrinsic value per share of $164.38, with a 25% margin of safety price of $123.29. Compared to the closing price of $60.83 on June 26, 2025, NIKE is trading at a 47.4% discount to the Buffett intrinsic value and a 63.0% discount to the McGrew intrinsic value, earning a “Screaming Buy” status for both methods. Even at the premarket price of $69.28, the stock remains significantly below both intrinsic values, reinforcing its attractiveness.
Valuation Table
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| NKE | Buffett Valuation | $115.66 | $86.75 | $60.83 | Screaming Buy |
| NKE | McGrew Valuation | $164.38 | $123.29 | $60.83 | Screaming Buy |
Management Outlook: Recovery on the Horizon
NIKE’s management, led by CEO Elliott Hill, acknowledged the fiscal 2025 challenges but expressed optimism about a recovery. Hill stated, “While our financial results are in-line with our expectations, they are not where we want them to be. Moving forward, we expect our business to improve as a result of the progress we’re making through our Win Now actions.” The company is launching a “sport offense” realignment to focus on key sports, enhance its product portfolio, and strengthen consumer engagement. CFO Matthew Friend added, “The fourth quarter reflected the largest financial impact from our Win Now actions, and we expect the headwinds to moderate from here.” While no specific numerical guidance was provided, management’s strategic initiatives suggest confidence in stabilizing performance and driving growth in fiscal 2026.
Financial Health: Robust Profitability Metrics
Despite the revenue and margin declines, NIKE’s profitability remains solid. The trailing 12-month Return on Equity (ROE) is 23.29%, calculated using fiscal 2025 net income of $3.219 billion and average shareholders’ equity of $13.822 billion. The Return on Tangible Assets (ROTA) is 8.74%, based on average tangible assets of $36.846 billion. These metrics underscore NIKE’s ability to generate strong returns even in a challenging year.
Market Reaction and Investment Outlook
The premarket surge to $69.28 (+10.75%) on June 27, 2025, likely reflects investor optimism about NIKE’s recovery potential, bolstered by management’s strategic plans and the new U.S.-China trade deal. However, the stock remains well below the intrinsic values of $115.66 (Buffett) and $164.38 (McGrew), suggesting significant upside potential. Investors should remain cautious of risks, including ongoing digital sales weakness (down 20%) and gross margin pressures, which could persist if the “Win Now” actions fall short. The trade deal’s positive impact on NIKE’s operations in China adds a layer of optimism, potentially easing cost pressures and supporting market recovery.
NIKE, Inc. offers a compelling investment opportunity, with valuations indicating significant undervaluation despite fiscal 2025’s challenges. The Buffett and McGrew Valuation Methods highlight intrinsic values far above the current price, supported by strong historical FCF growth and management’s recovery initiatives. The new U.S.-China trade deal enhances certainty for NIKE’s operations, particularly in Greater China, further supporting its long-term growth prospects. Even with the premarket increase to $69.28, NIKE remains a “Screaming Buy” for investors confident in its brand strength and strategic turnaround.
#NIKE #StockValuation #Investing #EarningsReport #ScreamingBuy #BuffettValuation #McGrewValuation #StockMarket #FinancialAnalysis #TradeDeal
