Ralph Lauren Corporation Quarterly Valuation – December 2014 $RL

Ralph_Lauren_CorporationBenjamin 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 Undervalued Dow Components to Research – December 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 Ralph Lauren Corporation (RL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ralph Lauren Corporation is engaged in the design, marketing and distribution of products, including men’s, women’s and children’s apparel, accessories (including footwear), fragrances and home furnishings. The Company operates in three segments: Wholesale, Retail and Licensing. Its apparel products include a range of men’s, women’s and children’s clothing. Accessories include a range of footwear, eyewear, watches, jewelry, hats, belts and leather goods, including handbags and luggage. The Company’s coordinated home products include bedding and bath products, furniture, fabric and wallpaper, paint, tabletop and giftware. Fragrance products are sold under its Big Pony, Romance, Polo, Lauren, Safari, Ralph and Black Label brands, among others.

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 - PASS
  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 – FAIL
  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 $182.95
MG Value $225.68
MG Opinion Fairly Valued
Value Based on 3% Growth $114.97
Value Based on 0% Growth $67.39
Market Implied Growth Rate 7.29%
Net Current Asset Value (NCAV) $13.35
PEmg 23.07
Current Ratio 2.77
PB Ratio 4.05

Balance Sheet – September 2014

Current Assets $3,560,000,000
Current Liabilities $1,283,000,000
Total Debt $549,000,000
Total Assets $6,398,000,000
Intangible Assets $1,223,000,000
Total Liabilities $2,369,000,000
Outstanding Shares 89,200,000

Earnings Per Share

2015 (estimated) $8.24
2014 $8.43
2013 $8.00
2012 $7.13
2011 $5.75
2010 $4.73
2009 $4.01
2008 $3.99
2007 $3.73
2006 $2.87
2005 $1.83

Earnings Per Share – ModernGraham

2015 (estimated) $7.93
2014 $7.45
2013 $6.62
2012 $5.66
2011 $4.76
2010 $4.13

Dividend History


Ralph Lauren Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios.  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 fairly valued after growing its EPSmg (normalized earnings) from $4.76 in 2011 to an estimated $7.93 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 7.29% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Ralph Lauren Corporation (RL) 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 Ralph Lauren Corporation (RL)?  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 Ralph Lauren Corporation (RL) 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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