Apparel Stocks

Ralph Lauren Corporation Analysis – September 2015 Update $RL

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 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 Wholesale business, representing approximately 47% of the Company’s fiscal 2014 net revenues, consists of sales made principally to major department stores and specialty stores across the world. The Company’s Retail business, representing approximately 51% of the Company’s fiscal 2014 net revenues, consists of sales made directly to consumers through its retail stores across the world; through concession-based shop-within-shops located primarily in Asia, Australia and Europe; and through the Company’s retail e-commerce channel in North America, Europe and Asia.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of RL – September 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 $9,327,885,661 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.69 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 95.48% Pass
6. Moderate PEmg Ratio PEmg < 20 14.75 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.55 Pass
Score
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 2.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.25 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

RL value Chart September 2015

EPSmg $7.54
MG Growth Estimate 4.98%
MG Value $139.17
Opinion Fairly Valued
MG Value based on 3% Growth $109.27
MG Value based on 0% Growth $64.06
Market Implied Growth Rate 3.13%
Current Price $111.16
% of Intrinsic Value 79.88%

Ralph Lauren Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position.  As a result, all value 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 fairly valued after growing its EPSmg (normalized earnings) from $5.66 in 2012 to an estimated $7.54 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.13% 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 within a margin of safety relative to 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 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.

Stage 3: Information for Further Research

RL Charts September 2015

Net Current Asset Value (NCAV) $11.92
Graham Number $81.34
PEmg 14.75
Current Ratio 2.69
PB Ratio 2.55
Dividend Yield 1.71%
Number of Consecutive Years of Dividend Growth 7

 

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Most Recent Balance Sheet Figures

Total Current Assets $3,304,000,000
Total Current Liabilities $1,229,000,000
Long-Term Debt $519,000,000
Total Assets $6,068,000,000
Intangible Assets $1,161,000,000
Total Liabilities $2,261,000,000
Shares Outstanding (Diluted Average) 87,500,000

Earnings Per Share History

Next Fiscal Year Estimate $6.62
Mar15 $7.88
Mar14 $8.43
Mar13 $8.00
Mar12 $7.13
Mar11 $5.75
Mar10 $4.73
Mar09 $4.01
Mar08 $3.99
Mar07 $3.73
Mar06 $2.87
Mar05 $1.83
Mar04 $1.69
Mar03 $1.76
Mar02 $1.75
Mar01 $0.61
Mar00 $1.45
Mar99 $0.91
Mar98 $1.20
Mar97 $0.89

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.54
Mar15 $7.81
Mar14 $7.45
Mar13 $6.62
Mar12 $5.66
Mar11 $4.76
Mar10 $4.13
Mar09 $3.65
Mar08 $3.26
Mar07 $2.72
Mar06 $2.13
Mar05 $1.69
Mar04 $1.56
Mar03 $1.43
Mar02 $1.24
Mar01 $0.99
Mar00 $1.08

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Apparel Industry – June 2015 $GPS $HBI $KORS $RL $VFC
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2015 $BEN $RL $FOSL $PWR $CMI
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – July 2015
The 10 Best Stocks For Value Investors This Week – 6/20/15
Ralph Lauren Corporation Analysis – June 2015 Update $RL

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Disclaimer:

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.  See my current holdings here.  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.  Please be sure to review our detailed disclaimer.

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