ModernGraham Valuation: Wolverine World Wide (WWW)
Company Profile (obtained from Google Finance): Wolverine World Wide, Inc. is a designer, manufacturer and marketer of a range of casual footwear and apparel, performance outdoor footwear and apparel, industrial work shoes, boots and apparel, and uniform shoes and boots. In addition to its branded footwear, apparel and licensing operations, it also operates 89 retail stores in North America and 12 retail stores in the United Kingdom that feature footwear and apparel, and operates a performance leathers business through its Wolverine Leathers Division. The products are marketed under brand names, which include Bates, Cat Footwear, Chaco, Cushe, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell, Patagonia Footwear, Sebago, Soft Style and Wolverine. Approximately 52 million pairs/units of its footwear and apparel were sold, during the year ended December 31, 2011. In October 2012, it announced that a consortium comprised of Wolverine Worldwide, Golden Gate Capital and Blum Capital Partners acquired Collective Brands, Inc.
Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- 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 = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
Key Data:
| MG Value | $15.58 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $14.07 |
| Value Based on 0% Growth | $8.25 |
| Market Implied Growth rate | 12.42% |
| NCAV | -$7.49 |
| PEmg | 33.34 |
| Current Ratio | 3.07 |
| PB Ratio | 4.24 |
Balance Sheet – 9/30/2013Â
| Current Assets | $1,150,100,000 |
| Current Liabilities | $375,100,000 |
| Total Debt | $1,101,900,000 |
| Total Assets | $2,670,200,000 |
| Intangible Assets | $1,269,000,000 |
| Total Liabilities | $1,903,700,000 |
| Outstanding Shares | 100,580,000 |
Earnings Per Share
| 2013 (estimate) | $0.93 |
| 2012 | $0.83 |
| 2011 | $1.27 |
| 2010 | $1.07 |
| 2009 | $0.63 |
| 2008 | $0.95 |
| 2007 | $0.85 |
| 2006 | $0.74 |
| 2005 | $0.64 |
| 2004 | $0.55 |
| 2003 | $0.42 |
Earnings Per Share – Modern GrahamÂ
| 2013 (estimate) | $0.97 |
| 2012 | $0.98 |
| 2011 | $1.02 |
| 2010 | $0.88 |
| 2009 | $0.77 |
| 2008 | $0.81 |
Conclusion:
Wolverine World Wide Inc. intrigues the Enterprising Investor because of its stable earnings, dividend history and current ratio. Â However, it is currently trading at a high PEmg ratio and a high PB ratio, causing it to not be suitable for the Defensive Investor. Â From a valuation standpoint, the company’s growth has been a little uneven and does not support the market’s current implied estimate of 12.42%. Â The ModernGraham valuation model estimates a growth rate closer to the 3-4% range, which would lead to an intrinsic value between $14 and $16. Â Since the company is currently trading over $32/share, it would appear to be significantly overvalued. Â As a result, Enterprising Investors should do considerably further research before deciding whether there is an opportunity for profit here.
What do you think?  Do you agree that Wolverine World Wide is overvalued?  Is the company suitable only for Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.
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Disclaimer: Â The author did not hold a position in Wolverine World Wide at the time of publication and had no intention of entering into a position within the next 72 hours.
Photo Credit: Â Andrew Magill
