Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today – MarchÂ 2016.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Nordstrom Inc (JWN)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Nordstrom, Inc. is a fashion specialty retailer in the United States. The company operates through two segments: Retail and Credit. The Retail segment includes approximately 115 Nordstrom branded full-line stores in the United States and Nordstrom.com, approximately 167 off-price Nordstrom Rack stores, two Canada full-line stores, Nordstromrack.com and HauteLook, and other retail channels, including five Trunk Club showrooms and TrunkClub.com, its two Jeffrey boutiques and one clearance store that operates under the name Last Chance. Credit segment includes its wholly owned federal savings bank, Nordstrom fsb, through which it provides a private label credit card, two Nordstrom VISA credit cards and a debit card. The Company operated 290 United States stores located in 38 states, as well as an e-commerce business through Nordstrom.com, Nordstromrack.com and HauteLook and TrunkClub.com, as of March 16, 2015. It also operates two Nordstrom full-line stores in Canada.
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 aÂ 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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$6,741,747,823||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.02||Fail|
|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||39.14%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||12.46||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||7.86||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||1.02||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||49.57||Fail|
|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
|MG Growth Estimate||0.90%|
|MG Value based on 3% Growth||$45.57|
|MG Value based on 0% Growth||$26.71|
|Market Implied Growth Rate||1.98%|
|% of Intrinsic Value||120.88%|
Nordstrom, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.96 in 2013 to an estimated $3.14 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.98% 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 below the price.
Nordstrom, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$21.81|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||4/1/2016|
|Total Current Assets||$2,992,000,000|
|Total Current Liabilities||$2,936,000,000|
|Shares Outstanding (Diluted Average)||175,700,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.48|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$3.14|
Other ModernGraham posts about the company
|10 Best Stocks For Value Investors This Week â€“ 10/31/15|
|Nordstrom Inc. Valuation â€“ October 2015 Update $JWN|
|The Best Companies of the Retail Industry â€“ August 2015|
|The 16 Best Stocks For Value Investors This Week â€“ 8/1/15|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.