Apparel Stocks

Michael Kors Holdings Ltd Valuation – July 2016 $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 Companies Benjamin Graham Would Invest In Today – June 2016.  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 Ltd (KORS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Michael Kors Holdings Limited is a global accessories, footwear and apparel company. The Company operates its business in three segments: retail, wholesale and licensing. It offers two primary collections: the Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury collection. In the Michael Kors collection, it offers accessories, including handbags and small leather goods, many of which are made from leathers and other exotic skins, footwear and apparel, including ready-to-wear women swear and menswear. Its MICHAEL Michael Kors collection offers accessories, primarily handbags and small leather goods, such as clutches, wallets, wristlets and cosmetic cases; footwear, primarily in women’s styles; and women swear, including dresses, tops, jeans, pants, skirts, shorts and outerwear. Through its licensing segment, it enters into agreements that license to third parties use of its brand name and trademarks, certain production, and sales and distribution rights.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of KORS – July 2016

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 $9,076,234,221 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.83 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 5863.64% Pass
6. Moderate PEmg Ratio PEmg < 20 12.35 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.76 Fail
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 3.83 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 July 2016

EPSmg $4.07
MG Growth Estimate 15.00%
MG Value $156.59
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $58.98
MG Value based on 0% Growth $34.57
Market Implied Growth Rate 1.92%
Current Price $50.23
% of Intrinsic Value 32.08%

Michael Kors Holdings Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.96 in 2013 to an estimated $4.07 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.92% 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.

Michael Kors Holdings Ltd performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

KORS charts July 2016

Net Current Asset Value (NCAV) $5.81
Graham Number $33.46
PEmg 12.35
Current Ratio 3.83
PB Ratio 4.76
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,669,800,000
Total Current Liabilities $435,500,000
Long-Term Debt $2,300,000
Total Assets $2,566,800,000
Intangible Assets $90,600,000
Total Liabilities $571,100,000
Shares Outstanding (Diluted Average) 189,054,000

Earnings Per Share History

Next Fiscal Year Estimate $4.40
Mar2016 $4.44
Mar2015 $4.28
Mar2014 $3.22
Mar2013 $1.97
Mar2012 $0.78
Mar2011 $0.33
Mar2010 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.07
Mar2016 $3.58
Mar2015 $2.81
Mar2014 $1.81
Mar2013 $0.96
Mar2012 $0.39
Mar2011 $0.17
Mar2010 $0.07

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 1/9/16
Michael Kors Holdings Ltd Valuation – January 2016 Update $KORS
10 Most Undervalued Companies for the Enterprising Investor – November 2015
13 Best Stocks For Value Investors This Week – 10/3/15
Michael Kors Holdings Limited Analysis – October 2015 Update $KORS

Other ModernGraham posts about related companies

Under Armour Inc Valuation – June 2016 $UA
Nike Inc. Valuation – May 2016 $NKE
Wolverine World Wide Inc Valuation – May 2016 $WWW
Ralph Lauren Corp Stock Valuation – February 2016 $RL
Gap Inc Valuation – February 2016 $GPS
American Eagle Outfitters Valuation – February 2016 $AEO
Hanesbrands Inc Valuation – February 2016 Update $HBI
VF Corporation Valuation – February 2016 Update $VFC
L Brands Inc Valuation – January 2016 Update $LB
Gap Inc Valuation – February 2016 $GPS

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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