Apparel Stocks

Chico’s FAS Inc Valuation – Initial Coverage $CHS

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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 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 Chico’s FAS Inc (CHS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chico’s FAS, Inc. is a specialty retailer of women’s private branded, casual-to-dressy clothing, intimates, complementary accessories and other non-clothing items operating under the Chico’s, White House Black Market (WHBM) and Soma brand names. The Company’s brands are specialty retailers of private label women’s apparel and related products. The Company’s product is available to customers in its domestic and international retail stores, through its e-commerce Websites, through telephone through its call centers, and through an unaffiliated franchise partner in Mexico. The Company operates approximately 1,520 stores across over 50 states, Puerto Rico, the United States Virgin Islands and Canada, and sells merchandise through over 40 franchise locations in Mexico. Its boutiques are located in upscale outdoor shopping areas, indoor shopping malls, and street-front locations. The Company’s outlet stores are located in outlet centers. It also sells clearance merchandise on its Websites.

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, 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 CHS – December 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 $1,990,847,808 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.62 Fail
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 29.49% Fail
6. Moderate PEmg Ratio PEmg < 20 38.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.28 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 1.62 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.42 Pass
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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.41
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $5.90
MG Value based on 0% Growth $3.46
Market Implied Growth Rate 15.09%
Current Price $15.73
% of Intrinsic Value N/A

Chico’s FAS, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $0.75 in 2013 to an estimated $0.41 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.09% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chico’s FAS, Inc. revealed the company was trading above its Graham Number of $7.91. The company pays a dividend of $0.32 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 38.68, which was above the industry average of 22.16. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.24.

Chico’s FAS, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.24
Graham Number $7.91
PEmg 38.68
Current Ratio 1.62
PB Ratio 3.28
Current Dividend $0.32
Dividend Yield 2.02%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $460,640,000
Total Current Liabilities $284,238,000
Long-Term Debt $74,768,000
Total Assets $1,110,313,000
Intangible Assets $135,704,000
Total Liabilities $491,174,000
Shares Outstanding (Diluted Average) 128,996,000

Earnings Per Share History

Next Fiscal Year Estimate $0.58
Jan2016 $0.01
Jan2015 $0.42
Jan2014 $0.41
Jan2013 $1.08
Jan2012 $0.82
Jan2011 $0.64
Jan2010 $0.39
Jan2009 -$0.11
Jan2008 $0.50
Jan2007 $0.93
Jan2006 $1.06
Jan2005 $0.78
Jan2004 $0.57
Jan2003 $0.39
Jan2002 $0.25
Jan2001 $0.17
Jan2000 $0.10
Jan1999 $0.06
Jan1998 $0.02
Jan1997 $0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.41
Jan2016 $0.40
Jan2015 $0.62
Jan2014 $0.70
Jan2013 $0.75
Jan2012 $0.54
Jan2011 $0.42
Jan2010 $0.40
Jan2009 $0.48
Jan2008 $0.77
Jan2007 $0.85
Jan2006 $0.74
Jan2005 $0.54
Jan2004 $0.37
Jan2003 $0.25
Jan2002 $0.16
Jan2001 $0.10

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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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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