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Gap Inc Valuation – March 2019 #GPS

Company Profile (excerpt from Reuters): The Gap, Inc. (Gap Inc.), incorporated on April 15, 1988, is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. The Company’s products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online and franchise channels, it also use the Company’s omni-channel capabilities to bridge the digital world and physical stores. The Company’s omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. The Company also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. Gap Inc. has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico. It operates Gap, Banana Republic and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East and Africa.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – March 2019

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 $11,256,117,427 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.96 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 24.61% Fail
6. Moderate PEmg Ratio PEmg < 20 12.76 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.18 Pass
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 1.96 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.60 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 $2.31
MG Growth Estimate -0.96%
MG Value $15.20
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $33.53
MG Value based on 0% Growth $19.66
Market Implied Growth Rate 2.13%
Current Price $29.51
% of Intrinsic Value 194.10%

Gap Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. 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 $2.47 in 2016 to an estimated $2.31 for 2020. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.13% 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 Gap Inc revealed the company was trading above its Graham Number of $22.51. The company pays a dividend of $0.97 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.76, which was below the industry average of 47.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.64.

Gap 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) -$0.64
Graham Number $22.51
PEmg 12.76
Current Ratio 1.96
PB Ratio 3.18
Current Dividend $0.97
Dividend Yield 3.29%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $4,251,000,000
Total Current Liabilities $2,174,000,000
Long-Term Debt $1,249,000,000
Total Assets $8,049,000,000
Intangible Assets $0
Total Liabilities $4,496,000,000
Shares Outstanding (Diluted Average) 383,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.46
Jan2019 $2.59
Jan2018 $2.14
Jan2017 $1.69
Jan2016 $2.23
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.58
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.31
Jan2019 $2.26
Jan2018 $2.18
Jan2017 $2.25
Jan2016 $2.47
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.88
Jan2012 $1.62
Jan2011 $1.57
Jan2010 $1.36
Jan2009 $1.24
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72

Recommended Reading:

Other ModernGraham posts about the company

Gap Inc Valuation – May 2018 $GPS
10 Low PE Stock Picks for the Defensive Investor – August 2017
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
12 Best Stocks for Value Investors This Week – 2/4/17
Gap Inc Valuation – January 2017 $GPS

Other ModernGraham posts about related companies

VF Corp Valuation – February 2019 $VFC
Foot Locker Inc Valuation – January 2019 $FL
Under Armour Inc Valuation – January 2019 $UA
Hanesbrands Inc Valuation – January 2019 $HBI
L Brands Inc Valuation – January 2019 $LB
Nike Inc Valuation – November 2018 $NKE
Deckers Outdoor Corp Valuation – May 2018 $DECK
Ralph Lauren Corp Valuation – May 2018 $RL
Abercrombie & Fitch Co Valuation – May 2018 $ANF
Steven Madden Ltd Valuation – May 2018 $SHOO

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.

Gap Inc Valuation – May 2018 $GPS

Company Profile (excerpt from Reuters): The Gap, Inc. (Gap Inc.), incorporated on April 15, 1988, is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. The Company’s products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online and franchise channels, it also use the Company’s omni-channel capabilities to bridge the digital world and physical stores. The Company’s omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. The Company also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. Gap Inc. has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico. It operates Gap, Banana Republic and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East and Africa.

GPS Chart

GPS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – May 2018

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 $11,225,274,504 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.86 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 23.11% Fail
6. Moderate PEmg Ratio PEmg < 20 13.39 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.65 Pass
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 1.86 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.59 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 $2.18
MG Growth Estimate -1.85%
MG Value $10.49
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $31.62
MG Value based on 0% Growth $18.54
Market Implied Growth Rate 2.45%
Current Price $29.21
% of Intrinsic Value 278.58%

Gap Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. 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 $2.49 in 2015 to an estimated $2.18 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.45% 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 Gap Inc revealed the company was trading above its Graham Number of $20.49. The company pays a dividend of $0.92 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.39, which was below the industry average of 49.11, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.7.

Gap 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) -$0.70
Graham Number $20.49
PEmg 13.39
Current Ratio 1.86
PB Ratio 3.65
Current Dividend $0.92
Dividend Yield 3.15%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $4,568,000,000
Total Current Liabilities $2,461,000,000
Long-Term Debt $1,249,000,000
Total Assets $7,989,000,000
Intangible Assets $204,000,000
Total Liabilities $4,845,000,000
Shares Outstanding (Diluted Average) 393,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.35
Jan2018 $2.14
Jan2017 $1.69
Jan2016 $2.23
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.58
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26
Jan1999 $0.91

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.18
Jan2018 $2.18
Jan2017 $2.25
Jan2016 $2.47
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.88
Jan2012 $1.62
Jan2011 $1.57
Jan2010 $1.36
Jan2009 $1.24
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72
Jan2003 $0.60

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2017
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
12 Best Stocks for Value Investors This Week – 2/4/17
Gap Inc Valuation – January 2017 $GPS
10 Low PE Stock Picks for the Defensive Investor – January 2017

Other ModernGraham posts about related companies

VF Corp Valuation – April 2018 $VFC
Michael Kors Holdings Ltd Valuation – March 2018 $KORS
Foot Locker Inc Valuation – March 2018 $FL
Under Armour Inc Valuation – March 2018 $UA
Hanesbrands Inc Valuation – March 2018 $HBI
L Brands Inc Valuation – March 2018 $LB
Nike Inc Valuation – February 2018 $NKE
Nike Inc Valuation – July 2017 $NKE
Deckers Outdoor Corp Valuation – Initial Coverage $DECK
Ralph Lauren Corp Valuation – April 2017 $RL

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.

Gap Inc Valuation – January 2017 $GPS

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 – January 2017.  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 Gap Inc (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. The Company’s segments include Gap Global, Old Navy Global, Banana Republic Global, Athleta and Intermix. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. Gap Inc. The Company has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Taiwan and Hong Kong.

GPS Chart

GPS data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – January 2017

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 $8,633,189,208 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 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 67.51% Pass
6. Moderate PEmg Ratio PEmg < 20 10.37 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.36 Pass
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 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.75 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.21
MG Growth Estimate 2.71%
MG Value $30.70
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $31.99
MG Value based on 0% Growth $18.75
Market Implied Growth Rate 0.94%
Current Price $22.88
% of Intrinsic Value 74.53%

Gap Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value 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 $1.87 in 2013 to an estimated $2.21 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.94% 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 above the price.

At the time of valuation, further research into Gap Inc revealed the company was trading above its Graham Number of $15.43. The company pays a dividend of $0.92 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.37, which was below the industry average of 22.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.53.

Gap Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.53
Graham Number $15.43
PEmg 10.37
Current Ratio 1.60
PB Ratio 3.36
Current Dividend $0.92
Dividend Yield 4.02%
Number of Consecutive Years of Dividend Growth 7

[/not-level-free]

Useful Links:

 

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

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $4,671,000,000
Total Current Liabilities $2,915,000,000
Long-Term Debt $1,320,000,000
Total Assets $8,007,000,000
Intangible Assets $0
Total Liabilities $5,281,000,000
Shares Outstanding (Diluted Average) 400,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.55
Jan2016 $2.23
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.34
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26
Jan1999 $0.91
Jan1998 $0.58
Jan1997 $0.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.21
Jan2016 $2.47
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.87
Jan2012 $1.59
Jan2011 $1.52
Jan2010 $1.30
Jan2009 $1.16
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72
Jan2003 $0.60
Jan2002 $0.67
Jan2001 $0.96

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2016
10 Low PE Stocks for the Defensive Investor – July 2016
10 Most Undervalued Companies for the Defensive Investor – July 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016

Other ModernGraham posts about related companies

PVH Corp Valuation – January 2017 $PVH
Steve Madden Ltd Valuation – Initial Coverage $SHOO
American Eagle Outfitters Valuation – January 2017 $AEO
Chico’s FAS Inc Valuation – Initial Coverage $CHS
Hanesbrands Inc Valuation – December 2016 $HBI
Nike Inc Valuation – November 2016 $NKE
Wolverine World Wide Inc Valuation – September 2016 $WWW
Ralph Lauren Corp Valuation – August 2016 $RL
Gap Inc Valuation – August 2016 $GPS
PVH Corp Valuation – August 2016 $PVH

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.

Gap Inc Valuation – August 2016 $GPS

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 – July 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 Gap Inc (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. The Company’s segments include Gap Global, Old Navy Global, Banana Republic Global, Athleta and Intermix. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. Gap Inc. The Company has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Taiwan and Hong Kong.

GPS Chart

GPS data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – August 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 $10,217,523,751 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 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 74.56% Pass
6. Moderate PEmg Ratio PEmg < 20 10.99 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.00 Pass
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 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.95 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 Pass

Stage 2: Determination of Intrinsic Value

GPS value chart August 2016

EPSmg $2.30
MG Growth Estimate 3.46%
MG Value $35.44
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $33.34
MG Value based on 0% Growth $19.54
Market Implied Growth Rate 1.25%
Current Price $25.27
% of Intrinsic Value 71.30%

Gap Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value 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 $1.87 in 2013 to an estimated $2.3 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% 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 above the price.

At the time of valuation, further research into Gap Inc revealed the company was trading above its Graham Number of $16.15. The company pays a dividend of $0.92 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.99, which was below the industry average of 26.26, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.61.

Gap Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

GPS charts August 2016

Net Current Asset Value (NCAV) -$2.61
Graham Number $16.15
PEmg 10.99
Current Ratio 1.54
PB Ratio 4.00
Current Dividend $0.92
Dividend Yield 3.64%
Number of Consecutive Years of Dividend Growth 7

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $3,945,000,000
Total Current Liabilities $2,555,000,000
Long-Term Debt $1,318,000,000
Total Assets $7,507,000,000
Intangible Assets $0
Total Liabilities $4,985,000,000
Shares Outstanding (Diluted Average) 399,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.83
Jan2016 $2.23
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.34
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26
Jan1999 $0.91
Jan1998 $0.58
Jan1997 $0.47

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.30
Jan2016 $2.47
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.87
Jan2012 $1.59
Jan2011 $1.52
Jan2010 $1.30
Jan2009 $1.16
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72
Jan2003 $0.60
Jan2002 $0.67
Jan2001 $0.96

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2016
10 Low PE Stocks for the Defensive Investor – July 2016
10 Most Undervalued Companies for the Defensive Investor – July 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016

Other ModernGraham posts about related companies

PVH Corp Valuation – August 2016 $PVH
American Eagle Outfitters Valuation – August 2016 $AEO
Hanesbrands Inc Valuation – August 2016 $HBI
VF Corp Valuation – August 2016 $VFC
L Brands Inc Valuation – July 2016 $LB
Michael Kors Holdings Ltd Valuation – July 2016 $KORS
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

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.

Gap Inc Valuation – February 2016 $GPS

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 – February 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 Gap Inc (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. is an apparel retail company. The Company offers apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands. In addition to operating in the specialty, outlet, online and franchise channels, Gap Inc. is an apparel retailer in using omni-channel capabilities for digital world and physical stores. Its omni-channel services include order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. Gap includes GapKids, babyGap, GapMaternity, GapBody and GapFit collections. It also offers handbags, shoes, jewelry, eyewear and personal care products, among others. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China and Hong Kong. It operates Gap, Banana Republic and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East and Africa.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS

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 $9,583,192,859 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 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 133.43% Pass
6. Moderate PEmg Ratio PEmg < 20 9.82 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.75 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 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.84 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 Pass

Stage 2: Determination of Intrinsic Value

GPS value chart February 2016

EPSmg $2.44
MG Growth Estimate 8.09%
MG Value $60.25
Opinion Undervalued
MG Value based on 3% Growth $35.40
MG Value based on 0% Growth $20.75
Market Implied Growth Rate 0.66%
Current Price $23.98
% of Intrinsic Value 39.80%

Gap Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only initially concerned by the low current ratio while the Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.59 in 2012 to an estimated $2.44 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.66% 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.

Stage 3: Information for Further Research

GPS charts February 2016

Net Current Asset Value (NCAV) -$2.05
Graham Number $17.64
PEmg 9.82
Current Ratio 1.58
PB Ratio 3.75
Dividend Yield 3.79%
Number of Consecutive Years of Dividend Growth 6

 

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $4,361,000,000
Total Current Liabilities $2,768,000,000
Long-Term Debt $1,331,000,000
Total Assets $7,806,000,000
Intangible Assets $0
Total Liabilities $5,197,000,000
Shares Outstanding (Diluted Average) 408,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.14
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.34
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26
Jan1999 $0.91
Jan1998 $0.58
Jan1997 $0.47

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.44
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.87
Jan2012 $1.59
Jan2011 $1.52
Jan2010 $1.30
Jan2009 $1.16
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72
Jan2003 $0.60
Jan2002 $0.67
Jan2001 $0.96
Jan2000 $0.84

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – January 2016
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – August 2015
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
The 6 Best Stocks For Value Investors This Week – 6/13/15

Other ModernGraham posts about related companies

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
Michael Kors Holdings Ltd Valuation – January 2016 Update $KORS
Abercrombie & Fitch Co Valuation – November 2015 Update $ANF
Nike Inc. Valuation – November 2015 Update $NKE
American Eagle Outfitters Valuation – November 2015 Update $AEO
Hanesbrands Inc. Valuation – November 2015 Update $HBI
Under Armour Inc Valuation – October 2015 Update $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.

Gap Inc Analysis – September 2015 Update $GPS

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 – August 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 Gap Inc (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. is an apparel retail company. The Company offers apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands. In addition to operating in the specialty, outlet, online and franchise channels, Gap Inc. is an apparel retailer in using omni-channel capabilities for digital world and physical stores. Its omni-channel services include order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. Gap includes GapKids, babyGap, GapMaternity, GapBody and GapFit collections. It also offers handbags, shoes, jewelry, eyewear and personal care products, among others. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China and Hong Kong. It operates Gap, Banana Republic and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East and Africa.

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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.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – September 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 $13,335,903,023 1 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.81 0 Fail
3. Earnings Stability Positive EPS for 10 years prior 1 Pass
4. Dividend Record Dividend Payments for 10 years prior 1 Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 144.88% 1 Pass
6. Moderate PEmg Ratio PEmg < 20 12.47 1 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.01 0 Fail
Score 5
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 1.81 1 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.75 1 Pass
3. Earnings Stability Positive EPS for 5 years prior 1 Pass
4. Dividend Record Currently Pays Dividend 1 Pass
5. Earnings Growth EPSmg greater than 5 years ago 1 Pass

Stage 2: Determination of Intrinsic Value

GPS value Chart September 2015

EPSmg $2.57
MG Growth Estimate 9.29%
MG Value $69.53
Opinion Undervalued
MG Value based on 3% Growth $37.24
MG Value based on 0% Growth $21.83
Market Implied Growth Rate 1.99%
Current Price $32.03
% of Intrinsic Value 46.07%

Gap 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 has no initial concerns.  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 $1.59 in 2012 to an estimated $2.57 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.99% 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 Gap Inc (GPS)?  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

Net Current Asset Value (NCAV) -$1.60
Graham Number $19.03
PEmg 12.47
Current Ratio 1.81
PB Ratio 5.01
Dividend Yield 2.81%
Number of Consecutive Years of Dividend Growth 6

 

[/not-level-free]

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 $3,947,000,000
Total Current Liabilities $2,184,000,000
Long-Term Debt $1,328,000,000
Total Assets $7,287,000,000
Intangible Assets $0
Total Liabilities $4,616,000,000
Shares Outstanding (Diluted Average) 418,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.52
Jan15 $2.87
Jan14 $2.74
Jan13 $2.33
Jan12 $1.56
Jan11 $1.88
Jan10 $1.58
Jan09 $1.34
Jan08 $1.05
Jan07 $0.93
Jan06 $1.24
Jan05 $1.21
Jan04 $1.09
Jan03 $0.54
Jan02 -$0.01
Jan01 $1.00
Jan00 $1.26
Jan99 $0.91
Jan98 $0.58
Jan97 $0.47
Jan96 $0.37

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.57
Jan15 $2.49
Jan14 $2.20
Jan13 $1.87
Jan12 $1.59
Jan11 $1.52
Jan10 $1.30
Jan09 $1.16
Jan08 $1.08
Jan07 $1.06
Jan06 $1.03
Jan05 $0.87
Jan04 $0.72
Jan03 $0.61
Jan02 $0.68
Jan01 $0.96
Jan00 $0.87

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – August 2015
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
The 6 Best Stocks For Value Investors This Week – 6/13/15
Gap Inc. Analysis – June 2015 Update $GPS

Other ModernGraham posts about related companies

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
Hanesbrands Inc. Analysis – Initial Coverage $HBI
Wolverine World Wide Analysis – June 2015 Update $WWW
Ralph Lauren Corporation Analysis – June 2015 Update $RL

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.

The Best Companies of the Apparel Industry – June 2015 $GPS $HBI $KORS $RL $VFC

Copy of Best Companies of the Apparel IndustryWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the apparel industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 540 companies reviewed by ModernGraham, 10 were identified as being closely related to the apparel industry.  Of those, only one is suitable for the Defensive Investor, eight are suitable for the Enterprising Investor, and the remaining one is considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 107.89% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 23.85.  The industry as a whole, therefore would appear to be fairly valued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Gap Inc. (GPS)

200px-Gap_logo.svgGap Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the low current ratio and the high PB ratio, while the Enterprising Investor has no initial concerns. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.59 in 2012 to an estimated $2.63 for 2016. This level of demonstrated growth outpaces the market’s implied estimate for earnings growth of 2.94% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 13%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value well above the current price, indicating Gap Inc. is significantly undervalued at the present time.  (See the full valuation)

Hanesbrands Inc. (HBI)

HanesBrandsHanesbrands Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history, and the high PEmg and PB ratios.  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 the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.46 in 2011 to an estimated $1.07 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.13% 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.  (See the full valuation)

Michael Kors Holdings (KORS)

MK_COOL_GRAY_7CMichael Kors is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the short operating history, lack of dividends, and the high PB ratio, while the Enterprising Investor’s only concern is the lack of dividends. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $0.19 in 2011 to $2.81 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 3.82% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged considerably more than the market’s estimate annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Michael Kors is significantly undervalued at the present time.  (See the full valuation)

Ralph Lauren Corporation (RL)

Ralph_Lauren_CorporationRalph Lauren performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. The Defensive Investor is only concerned with the poor PB ratio, while the Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $4.76 in 2011 to an estimated $7.81 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 4.33% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 9.6% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation)

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

VF Corporation (VFC)

Vfc-lVF Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the low current ratio and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.49 in 2011 to an estimated $2.69 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 8.75% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 16%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating VF Corporation is fairly valued at the present time.  (See the full valuation)

The Full List

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Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
AEO American Eagle Outfitters E 8/6/2015 $2.44 $17.68 724.59% 25.26 2.83%
GPS Gap Inc E 6/9/2015 $74.14 $34.89 47.06% 13.27 2.64%
HBI Hanesbrands Inc. E 7/27/2015 $41.02 $28.63 69.80% 26.76 1.40%
KORS Michael Kors Holdings Ltd E 6/25/2015 $108.19 $43.84 40.52% 15.60 N/A
NKE Nike Inc E 5/11/2015 $74.61 $114.53 153.50% 38.69 0.98%
PVH PVH Corp S 4/2/2015 $143.95 $113.80 79.06% 28.81 0.13%
RL Ralph Lauren Corp D 6/15/2015 $216.36 $120.20 55.56% 15.39 1.66%
UA Under Armour Inc E 7/27/2015 $33.19 $97.95 295.12% 113.90 N/A
VFC VF Corp E 6/5/2015 $88.40 $75.80 85.75% 28.18 1.69%
WWW Wolverine World Wide, Inc. E 6/18/2015 $19.42 $28.10 144.70% 22.66 0.85%

[/level-mg-stocks-screens-subscriber]

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
AEO American Eagle Outfitters E 8/6/2015 $17.68 2.83%
GPS Gap Inc E 6/9/2015 $34.89 2.64%
HBI Hanesbrands Inc. E 7/27/2015 $28.63 1.40%
KORS Michael Kors Holdings Ltd E 6/25/2015 $43.84 N/A
NKE Nike Inc E 5/11/2015 $114.53 0.98%
PVH PVH Corp S 4/2/2015 $113.80 0.13%
RL Ralph Lauren Corp D 6/15/2015 $120.20 1.66%
UA Under Armour Inc E 7/27/2015 $97.95 N/A
VFC VF Corp E 6/5/2015 $75.80 1.69%
WWW Wolverine World Wide, Inc. E 6/18/2015 $28.10 0.85%

[/level-free]

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.  Logos taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Gap Inc. Analysis – June 2015 Update $GPS

200px-Gap_logo.svgGap Inc. (GPS) may intrigue many investors simply because it has dropped in price relative to the market over the last several months, making it somewhat attractive based on its price alone. In addition, some analysts such as Josh Arnold believe the market may be over reacting to the latest earnings results.

That said, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to determine a potential investment’s merits. Here’s an updated look at how Gap Inc. fares in the ModernGraham valuation model.

This model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

GPS Chart

GPS data by YCharts

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To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
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[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least one-third over the last 10 years, using three-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. 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 = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $37.80
MG Value $74.14
MG Opinion Undervalued
Value Based on 3% Growth $38.11
Value Based on 0% Growth $22.34
Market Implied Growth Rate 2.94%
NCAV -$1.17
PEmg 14.38
Current Ratio 1.89
PB Ratio 5.57

Balance Sheet – March 2015

Current Assets $4,118,000,000
Current Liabilities $2,174,000,000
Total Debt $1,331,000,000
Total Assets $7,495,000,000
Intangible Assets $0
Total Liabilities $4,616,000,000
Outstanding Shares 424,000,000

Earnings Per Share

2016 (estimate) $2.70
2015 $2.87
2014 $2.74
2013 $2.33
2012 $1.56
2011 $1.88
2010 $1.58
2009 $1.34
2008 $1.05
2007 $0.93
2006 $1.24

Earnings Per Share – ModernGraham

2016 (estimate) $2.63
2015 $2.49
2014 $2.20
2013 $1.87
2012 $1.59
2011 $1.52

Dividend History

GPS Dividend Chart

GPS Dividend data by YCharts

Competitive Comparison

Gap Inc. is much more attractive as an investment than some of its competitors. For example, a ModernGraham valuation of Nike Inc. (NYSE:NKE) indicates the company is suitable for the Enterprising Investor but is currently overvalued. Ralph Lauren Corporation (NYSE:RL) is found as suitable for Enterprising Investors and is undervalued, but not as significantly as Gap Inc.

Conclusion

Gap Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the low current ratio and the high PB ratio, while the Enterprising Investor has no initial concerns. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.59 in 2012 to an estimated $2.63 for 2016. This level of demonstrated growth outpaces the market’s implied estimate for earnings growth of 2.94% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 13%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value well above the current price, indicating Gap Inc. is significantly undervalued at the present time.

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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

The Gap Inc. Quarterly Valuation – March 2015 $GPS

200px-Gap_logo.svg

The Gap Inc. performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio and the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.52 in 2011 to $2.49 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of only 3.94% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of The Gap Inc. (GPS) for a greater perspective!

Read the full valuation on Seeking Alpha!

GPS Chart

GPS data by YCharts

Disclaimer: The author did not hold a position in The Gap Inc. (GPS) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

The Gap Inc. Quarterly Valuation – December 2014 $GPS

200px-Gap_logo.svgBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – November 2014.  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 The Gap Inc. (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. (Gap Inc.),is a global specialty apparel company. Gap Inc. offers apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The Company operates in two segments: Stores, which includes the operations of the retail stores for Gap, Old Navy, and Banana Republic, and Direct, which includes the operations for its online brands, both domestic and international. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China, and Italy. It also has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores. Under these agreements, third parties operate or will operate stores that sell apparel and related products under its brand names. In February 2014, GAP Inc announced the Old Navy’s opening of the brand’s first store in China.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. 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
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. 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 = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $39.43
MG Value $64.45
MG Opinion Undervalued
Value Based on 3% Growth $35.24
Value Based on 0% Growth $20.66
Market Implied Growth Rate 3.86%
NCAV -$1.47
PEmg 16.23
Current Ratio 1.71
PB Ratio 6.04

Balance Sheet – October 2014

Current Assets $4,323,000,000
Current Liabilities $2,522,000,000
Total Debt $1,358,000,000
Total Assets $7,819,000,000
Intangible Assets $0
Total Liabilities $4,964,000,000
Outstanding Shares 437,000,000

Earnings Per Share

2015 (estimate) $2.70
2014 $2.74
2013 $2.33
2012 $1.56
2011 $1.88
2010 $1.58
2009 $1.34
2008 $1.05
2007 $0.93
2006 $1.24
2005 $1.21

Earnings Per Share – ModernGraham

2015 (estimate) $2.43
2014 $2.20
2013 $1.87
2012 $1.59
2011 $1.52
2010 $1.30

Dividend History

Conclusion:

The Gap Inc. qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, and the high PB ratio.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to an estimated $2.43 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 3.86% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of The Gap Inc. (GPS) for greater perspective!

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 The Gap Inc. (GPS)?  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.

Disclaimer:  The author did not hold a position in The Gap Inc. (GPS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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