Nike has significant sales in emerging markets. Assume that Nike announces that its earnings (reported in dollars) would be impacted by the depreciation of many of the emerging market currencies in relation to the dollar.
Assume before this announcement that Nike is trading at $75 a share. The P/E for Nike equals 25 and the PEG (based on a 5 year forecast) equals 2.0.
a) Based on the above information, what is the value of E for Nike?
b) Based on the above information, what is the forecast for average annual earnings growth for the next 5 years?
c) Assume due to the exchange rate outlook, Nike’s earnings change by 20%. You need to analyze if the currency effect helps or hurts Nike’s earnings (that are reported in dollars). Holding Nike’s price at $75, what is the new P/E for Nike?
d) Following your answer for part c) and assuming no change in Nike’s long term growth outlook. What is a new market price for Nike to bring its 5 year PEG back to a value of 2.0?