Retail Stocks

Nordstrom Inc. Valuation – October 2015 Update $JWN

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 – October 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 Nordstrom Inc. (JWN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Nordstrom, Inc. is a fashion specialty retailer in the United States. The company operates through two segments: Retail and Credit. The Retail segment includes approximately 115 Nordstrom branded full-line stores in the United States and Nordstrom.com, approximately 167 off-price Nordstrom Rack stores, two Canada full-line stores, Nordstromrack.com and HauteLook, and other retail channels, including five Trunk Club showrooms and TrunkClub.com, its two Jeffrey boutiques and one clearance store that operates under the name Last Chance. Credit segment includes its wholly owned federal savings bank, Nordstrom fsb, through which it provides a private label credit card, two Nordstrom VISA credit cards and a debit card. The Company operated 290 United States stores located in 38 states, as well as an e-commerce business through Nordstrom.com, Nordstromrack.com and HauteLook and TrunkClub.com, as of March 16, 2015. It also operates two Nordstrom full-line stores in Canada.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of JWN – October 2015

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 $12,184,446,062 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.57 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 54.96% Pass
6. Moderate PEmg Ratio PEmg < 20 17.52 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.02 Fail
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 1.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.42 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

JWN value Chart October 2015

EPSmg $3.69
MG Growth Estimate 6.15%
MG Value $76.78
Opinion Fairly Valued
MG Value based on 3% Growth $53.52
MG Value based on 0% Growth $31.38
Market Implied Growth Rate 4.51%
Current Price $64.66
% of Intrinsic Value 84.22%

Nordstrom Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  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 fairly valued after growing its EPSmg (normalized earnings) from $2.62 in 2012 to an estimated $3.69 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.51% 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 within a margin of safety relative to 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 Nordstrom Inc. (JWN)?  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

JWN Charts October 2015

Net Current Asset Value (NCAV) -$9.18
Graham Number $33.73
PEmg 17.52
Current Ratio 1.57
PB Ratio 5.02
Dividend Yield 2.17%
Number of Consecutive Years of Dividend Growth 6

 

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Most Recent Balance Sheet Figures

Total Current Assets $5,432,000,000
Total Current Liabilities $3,456,000,000
Long-Term Debt $2,808,000,000
Total Assets $9,700,000,000
Intangible Assets $447,000,000
Total Liabilities $7,209,000,000
Shares Outstanding (Diluted Average) 193,500,000

Earnings Per Share History

Next Fiscal Year Estimate $3.82
Jan15 $3.72
Jan14 $3.71
Jan13 $3.56
Jan12 $3.14
Jan11 $2.75
Jan10 $2.01
Jan09 $1.83
Jan08 $2.88
Jan07 $2.55
Jan06 $1.98
Jan05 $1.39
Jan04 $0.88
Jan03 $0.33
Jan02 $0.46
Jan01 $0.39
Jan00 $0.73
Jan99 $0.71
Jan98 $0.60
Jan97 $0.46
Jan96 $0.51

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.69
Jan15 $3.54
Jan14 $3.31
Jan13 $2.96
Jan12 $2.62
Jan11 $2.37
Jan10 $2.21
Jan09 $2.24
Jan08 $2.28
Jan07 $1.79
Jan06 $1.28
Jan05 $0.85
Jan04 $0.57
Jan03 $0.46
Jan02 $0.54
Jan01 $0.58
Jan00 $0.65

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Retail Industry – August 2015
Nordstrom Inc. Analysis – July 2015 Update $JWN
21 Companies in the Spotlight This Week – 5/9/15
Nordstrom Inc. Quarterly Valuation – May 2015 $JWN
34 Companies in the Spotlight This Week – 2/7/15

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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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