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Saturday, January 19, 2019

Michael Kors Holdings Limited Analysis – October 2015 Update $KORS


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 or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  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 stock analysis showing a specific look at how Michael Kors Holdings Limited (KORS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Michael Kors Holdings Limited is a global luxury lifestyle brand company. The Company operates its business in three segments namely Retail, Wholesale and Licensing. It has global distribution network of company-operated retail stores, department stores, specialty stores and select licensing partners. The Company offers two primary collections namely the Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury collection. The Company also offers two collections that offer accessories, footwear and apparel namely the Michael Kors collection and the MICHAEL Michael Kors collection. It offers both collections through its retail and wholesale segments. The Company also offers licensed products through its retail segment. Its licensing segment is engaged in providing licenses to third parties, which include certain production, sales and/or distribution rights.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of KORS

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,170,144,996 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.35 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 38033.33% Pass
6. Moderate PEmg Ratio PEmg < 20 12.21 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.99 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 5.35 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

KORS value chart October 2015

EPSmg $3.41
MG Growth Estimate 15.00%
MG Value $131.41
Opinion Undervalued
MG Value based on 3% Growth $49.49
MG Value based on 0% Growth $29.01
Market Implied Growth Rate 1.85%
Current Price $41.66
% of Intrinsic Value 31.70%

Michael Kors Holdings qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short operating history as a publicly traded company.  The Enterprising Investor is only initially concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.39 in 2012 to an estimated $3.41 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.85% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

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 Michael Kors Holdings (KORS)?  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.

Stage 3: Information for Further Research

KORS charts October 2015

Net Current Asset Value (NCAV) $6.73
Graham Number $30.94
PEmg 12.21
Current Ratio 5.35
PB Ratio 3.99
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,813,851,000
Total Current Liabilities $339,000,000
Long-Term Debt $0
Total Assets $2,556,668,000
Intangible Assets $82,904,000
Total Liabilities $467,479,000
Shares Outstanding (Diluted Average) 200,054,000

Earnings Per Share History

Next Fiscal Year Estimate $3.94
Mar15 $4.28
Mar14 $3.22
Mar13 $1.97
Mar12 $0.78
Mar11 $0.33
Mar10 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.41
Mar15 $2.81
Mar14 $1.81
Mar13 $0.96
Mar12 $0.39
Mar11 $0.17
Mar10 $0.07

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Apparel Industry – June 2015 $GPS $HBI $KORS $RL $VFC
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – July 2015
Michael Kors Holdings Analysis – June 2015 Update $KORS
5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – May 2015
5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – April 2015

Other ModernGraham posts about related companies

Wolverine World Wide Inc. Analysis – September 2015 Update $WWW
Ralph Lauren Corporation Analysis – September 2015 Update $RL
Gap Inc Analysis – September 2015 Update $GPS
VF Corporation Analysis – September 2015 Update $VFC
L Brands Inc. Analysis – August 2015 Update $LB
Abercrombie & Fitch Company Analysis – Initial Coverage $ANF
Nike Inc. Analysis – August 2015 Update $NKE
The Best Companies of the Apparel Industry – June 2015 $GPS $HBI $KORS $RL $VFC
American Eagle Outfitters Analysis – Initial Coverage $AEO
Under Armour Inc. Analysis – Initial Coverage $UA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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