Ralph Lauren Corp Stock Valuation – February 2016 $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 Companies Benjamin Graham Would Invest In Today – February 2016.  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 Corp (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 lifestyle products, including apparel, accessories, home furnishings and other licensed product categories. The Company operates in three segments: Wholesale, Retail and Licensing. Wholesale business, representing approximately 46% of net revenues as of fiscal year ended March 28, 2015 (Fiscal 2015), consists of sales made to department stores and specialty stores around the world. Retail business consists of sales made directly to consumers through retail channel, which includes Company’s retail stores, concession-based shop-within-shops and e-commerce operations around the world. Licensing business consists of royalty-based arrangements, under which the Company license to unrelated third parties for specified periods the right to operate retail stores and/or to use its various trademarks in connection with the manufacture and sale of designated products, such as certain apparel, eyewear and fragrances.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of RL

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 $7,756,475,371 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.84 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 80.73% Pass
6. Moderate PEmg Ratio PEmg < 20 12.69 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.99 Pass
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 2.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.39 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 February 2016

EPSmg $6.96
MG Growth Estimate 3.45%
MG Value $107.23
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $100.91
MG Value based on 0% Growth $59.15
Market Implied Growth Rate 2.10%
Current Price $88.33
% of Intrinsic Value 82.37%

Ralph Lauren Corp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

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 $6.96 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 2.1% 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. Ralph Lauren Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

RL charts February 2016

Net Current Asset Value (NCAV) $10.70
Graham Number $70.59
PEmg 12.69
Current Ratio 2.84
PB Ratio 1.99
Dividend Yield 2.26%
Number of Consecutive Years of Dividend Growth 7


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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $3,452,000,000
Total Current Liabilities $1,214,000,000
Long-Term Debt $865,000,000
Total Assets $6,341,000,000
Intangible Assets $1,149,000,000
Total Liabilities $2,537,000,000
Shares Outstanding (Diluted Average) 85,500,000

Earnings Per Share History

Next Fiscal Year Estimate $4.89
Mar2015 $7.88
Mar2014 $8.43
Mar2013 $8.00
Mar2012 $7.13
Mar2011 $5.75
Mar2010 $4.73
Mar2009 $4.01
Mar2008 $3.99
Mar2007 $3.73
Mar2006 $2.87
Mar2005 $1.83
Mar2004 $1.69
Mar2003 $1.76
Mar2002 $1.75
Mar2001 $0.58
Mar2000 $1.45
Mar1999 $0.91
Mar1998 $1.20
Mar1997 $0.89

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.96
Mar2015 $7.81
Mar2014 $7.45
Mar2013 $6.62
Mar2012 $5.66
Mar2011 $4.76
Mar2010 $4.13
Mar2009 $3.65
Mar2008 $3.26
Mar2007 $2.72
Mar2006 $2.13
Mar2005 $1.68
Mar2004 $1.56
Mar2003 $1.42
Mar2002 $1.23
Mar2001 $0.98
Mar2000 $1.08

Recommended Reading:

Other ModernGraham posts about the company

10 Best Stocks For Value Investors This Week – 9/26/15
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

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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.  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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