Ann Inc. Analysis – Initial Coverage $ANN

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 Ann Inc. (ANN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ANN INC., through its wholly owned subsidiaries, is a specialty retailer of women’s apparel, shoes and accessories sold primarily under the Ann Taylor and LOFT brands. The Company operates in four segments: Ann Taylor, LOFT, Ann Taylor Factory and LOFT Outlet. The Company operates approximately 1,030 retail stores in 47 states of the United States, the District of Columbia, Puerto Rico and Canada, comprising 245 Ann Taylor stores, 537 LOFT stores, 116 Ann Taylor Factory stores, 127 LOFT Outlet stores and five Lou & Grey stores. In addition, the Company’s clients shop online in over 100 countries across the world at and, and at three LOFT franchise locations in Mexico. The Company’s wholly owned subsidiary, AnnTaylor Distribution Services, Inc., owns its 256,000 square foot distribution center located in Louisville, Kentucky. The distribution center is located on approximately 29 acres.


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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.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ANN – August 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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 1.81
MG Growth Estimate 15.00%
MG Value $69.81
Opinion Undervalued
MG Value based on 3% Growth $26.29
MG Value based on 0% Growth $15.41
Market Implied Growth Rate 8.33%
Current Price $45.64
% of Intrinsic Value 65.37%

Ann Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth or stability over the last ten years, the lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the lack of dividends.  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 $0.14 in 2012 to an estimated $1.81 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.33% 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 Ann Inc. (ANN)?  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

ANN charts August 2015

Net Current Asset Value (NCAV) $1.68
PEmg 25.17
Current Ratio 1.86
PB Ratio 3.91
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Total Current Assets $617,259,000
Total Current Liabilities $332,283,000
Long-Term Debt $0
Total Assets $1,070,703,000
Intangible Assets $0
Total Liabilities $541,127,000
Shares Outstanding (Diluted Average) 45,383,000

Earnings Per Share History

Next Fiscal Year Estimate $1.79
Jan15 $1.46
Jan14 $2.19
Jan13 $2.10
Jan12 $1.64
Jan11 $1.24
Jan10 -$0.32
Jan09 -$5.82
Jan08 $1.53
Jan07 $1.98
Jan06 $1.13
Jan05 $0.88
Jan04 $1.42
Jan03 $1.14
Jan02 $0.45
Jan01 $0.78
Jan00 $0.91
Jan99 $0.64
Jan98 $0.21
Jan97 $0.16
Jan96 -$0.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.81
Jan15 $1.79
Jan14 $1.76
Jan13 $0.95
Jan12 $0.14
Jan11 -$0.50
Jan10 -$1.01
Jan09 -$0.93
Jan08 $1.48
Jan07 $1.40
Jan06 $1.08
Jan05 $1.01
Jan04 $1.03
Jan03 $0.82
Jan02 $0.64
Jan01 $0.67
Jan00 $0.54

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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.  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.

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