Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Wolverine World Wide fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Wolverine World Wide, Inc. is a designer, manufacturer and marketer of a range of casual footwear and apparel, performance outdoor footwear and apparel, industrial work shoes, boots and apparel, and uniform shoes and boots. In addition to its branded footwear, apparel and licensing operations, it also operates 89 retail stores in North America and 12 retail stores in the United Kingdom that feature footwear and apparel, and operates a performance leathers business through its Wolverine Leathers Division. The products are marketed under brand names, which include Bates, Cat Footwear, Chaco, Cushe, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell, Patagonia Footwear, Sebago, Soft Style and Wolverine. Approximately 52 million pairs/units of its footwear and apparel were sold, during the year ended December 31, 2011. In October 2012, it announced that a consortium comprised of Wolverine Worldwide, Golden Gate Capital and Blum Capital Partners acquired Collective Brands, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$14.40|
|Value Based on 0% Growth||$8.44|
|Market Implied Growth rate||9.53%|
Balance Sheet – 12/31/2013
Earnings Per Share
Earnings Per Share – ModernGraham
Wolverine World Wide is suitable for the Enterprising Investor despite having a higher level of long-term debt relative to current assets than the investor type typically likes to see. However, the company does not qualify for the Defensive Investor due to high PEmg and PB ratios at the current time. As a result, Enterprising Investors should keep the company on their watch lists, conducting further research into the company’s prospects as well as other opportunities through a review of 5 Low PEmg Companies for the Enterprising Investor and 5 Undervalued Companies for the Enterprising Investor. As for a valuation, the company has grown its EPSmg (normalized earnings) from $0.77 in 2009 to $0.99 for 2013, a low level of historically demonstrated growth that does not support the market’s implied estimate of 9.53% earnings growth. Accordingly, the ModernGraham valuation model returns an estimate of intrinsic value that falls well below the market’s current price, indicating the company may be overvalued presently.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on Wolverine World Wide (WWW)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens? It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: The author did not hold a position in Wolverine World Wide (WWW) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.