PVH Corporation Quarterly Valuation – January 2015 $PVH
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 Most Undervalued Companies for the Defensive Investor – 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 PVH Corporation (PVH) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): PVH Corp., is an apparel company. The Company’s portfolio of brands includes Calvin Klein, Tommy Hilfiger brands, Van Heusen, IZOD, Bass, ARROW and Eagle, which are owned brands, and Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, JOE Joseph Abboud, MICHAEL Michael Kors, Michael Kors Collection, CHAPS, Donald J. Trump Signature Collection, DKNY, Elie Tahari, Nautica, Ted Baker, J. Garcia, Claiborne, Robert Graham, U.S. POLO ASSN., Axcess and Jones New York, which are licensed, as well as various other licensed and private label brands. It designs and markets branded dress shirts, neckwear, sportswear and, to a lesser extent, footwear and other related products. Additionally, it licenses its owned brands over a range of products. In April 2014, PVH Corp acquired an undisclosed minority stake in Karl Lagerfeld BV.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- 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 PASS
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 | $126.34 |
| MG Value | $177.72 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $66.93 |
| Value Based on 0% Growth | $39.24 |
| Market Implied Growth Rate | 9.44% |
| Net Current Asset Value (NCAV) | -$45.80 |
| PEmg | 27.37 |
| Current Ratio | 2.08 |
| PB Ratio | 2.30 |
Balance Sheet – October 2014
| Current Assets | $2,867,000,000 |
| Current Liabilities | $1,379,000,000 |
| Total Debt | $3,619,000,000 |
| Total Assets | $11,266,000,000 |
| Intangible Assets | $7,361,000,000 |
| Total Liabilities | $6,682,000,000 |
| Outstanding Shares | 83,300,000 |
Earnings Per Share
| 2015 (estimate) | $7.26 |
| 2014 | $1.74 |
| 2013 | $5.87 |
| 2012 | $3.78 |
| 2011 | $0.81 |
| 2010 | $3.08 |
| 2009 | $1.76 |
| 2008 | $3.21 |
| 2007 | $2.64 |
| 2006 | $1.85 |
| 2005 | $1.14 |
Earnings Per Share – ModernGraham
| 2015 (estimate) | $4.62 |
| 2014 | $3.21 |
| 2013 | $3.65 |
| 2012 | $2.54 |
| 2011 | $2.05 |
| 2010 | $2.61 |
Dividend History
Conclusion:
PVH Corp qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the high PEmg ratio, while the Enterprising Investor is only concerned by the high level of debt relative to the net current assets.  As a result, value 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 $2.05 in 2011 to an estimated $4.62 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 9.44% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return 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 PV Corporation (PVH)?  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 PVH Corporation (PVH) 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.
