Nike Digs in a Firm Market Foothold

Considering its strengths, Nike's valuation looks low, with its shares trading at $81, about 14 times earnings estimates through 2006. Lemos' discounted cash-flow analysis of the company puts its fair value at $88. Cowperthwaite's analysis puts its fair value at $95 to $100.

More than anything, Nike's current price probably reflects concern about its executive succession plan and Phil Knight's ability to hand over the reins in a way that will produce sustainable leadership. Shareholders were largely satisfied with Perez.

In December, Nike reported that its fiscal second-quarter profits grew by 15% from a year earlier, beating Wall Street's estimate by a wide margin. Those results continued a string of successful quarters during which Perez conducted exhaustive strategic reviews with the company's senior executives.

"One of my primary missions as CEO is to make sure this company has the right strategies in place to sustain long-term growth and ultimately double the size and value of our business," Perez said to analysts in December.

In the end, Knight differed with Perez on how to reach that goal.

"Succession at any company is challenging, and unfortunately the expectations that Bill and I and others had when he joined the company a year ago didn't play out as we had hoped," Knight said in a statement last week.

The ultimate question is whether Nike can break from Knight's control (he's 68) and continue to hold the magic that Knight started when he began selling sneakers out of the trunk of his car and later signed Michael Jordan to an advertising deal -- perhaps Nike's greatest coup.

With or without Knight, Nike's logo, the swoosh, and its motto, "Just do it," are two of the most recognizable brands in corporate marketing.

"This is a very brand-oriented industry, and Knight has built one of the greatest brands in the world," Shanley says. "Giving the reins over to Parker will probably ensure that the same culture that made Nike what it is will continue."