Wolverine World Wide Quarterly Valuation – December 2014 $WWW
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 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 Wolverine World Wide (WWW) fares in the ModernGraham valuation model.
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 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 -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â 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 -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â 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 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $28.77 |
| MG Value | $22.29 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $17.04 |
| Value Based on 0% Growth | $9.99 |
| Market Implied Growth rate | 7.99% |
| NCAV | -$5.17 |
| PEmg | 24.48 |
| Current Ratio | 3.45 |
| PB Ratio | 2.99 |
Balance Sheet – September 2014
| Current Assets | $1,249,000,000 |
| Current Liabilities | $362,000,000 |
| Total Debt | $1,045,000,000 |
| Total Assets | $2,728,000,000 |
| Intangible Assets | $1,251,000,000 |
| Total Liabilities | $1,766,000,000 |
| Outstanding Shares | 100,000,000 |
Earnings Per Share
| 2014 (estimate) | $1.54 |
| 2013 | $0.99 |
| 2012 | $0.81 |
| 2011 | $1.24 |
| 2010 | $1.06 |
| 2009 | $0.62 |
| 2008 | $0.95 |
| 2007 | $0.85 |
| 2006 | $0.74 |
| 2005 | $0.64 |
| 2004 | $0.55 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $1.18 |
| 2013 | $0.98 |
| 2012 | $0.96 |
| 2011 | $1.00 |
| 2010 | $0.87 |
| 2009 | $0.77 |
Dividend History
Conclusion:
Wolverine World Wide is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor is concerned with the level of debt relative to the net current assets.  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 overvalued after growing its EPSmg (normalized earnings) from $0.87 in 2010 to only an estimated $1.18 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.99% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.
Be sure to check out previous ModernGraham valuations of Wolverine World Wide (WWW)Â 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 Wolverine World Wide (WWW)?  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 Wolverine World Wide (WWW) 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.
