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 - July 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 Tiffany & Co (TIF) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Tiffany & Co. is a holding company that operates through its subsidiary companies. The Company’s principal subsidiary, Tiffany and Company (Tiffany), is a jeweler and specialty retailer. Through its subsidiaries, the Company designs and manufactures products and operates TIFFANY & CO. retail stores. The Company’s segments include Americas, Asia-Pacific, Japan, Europe and Other. The Americas segment includes sale in Company-operated TIFFANY & CO. stores in the United States, Canada and Latin America. The Asia-Pacific segment includes over 80 Company-operated TIFFANY & CO. stores in China, Korea, Hong Kong, Taiwan, Australia, Singapore, Macau, Malaysia and Thailand. The Japan segment includes approximately 60 Company-operated TIFFANY & CO. stores. The retail sales in Europe are transacted in over 40 Company-operated TIFFANY & CO. stores. The Other segment includes retail sales and wholesale distribution; wholesale sales of diamonds, and licensing agreements.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of TIF – August 2016
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 | $8,174,289,116 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 4.91 | 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 | 76.53% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 19.73 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.74 | 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 | 4.91 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.28 | 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
| EPSmg | $3.23 |
| MG Growth Estimate | 1.35% |
| MG Value | $36.16 |
| Opinion | Overvalued |
| MG Grade | B- |
| MG Value based on 3% Growth | $46.81 |
| MG Value based on 0% Growth | $27.44 |
| Market Implied Growth Rate | 5.62% |
| Current Price | $63.69 |
| % of Intrinsic Value | 176.14% |
Tiffany & Co. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 Overvalued after growing its EPSmg (normalized earnings) from $2.96 in 2013 to an estimated $3.23 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.62% 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.
Tiffany & Co. performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $10.41 |
| Graham Number | $42.02 |
| PEmg | 19.73 |
| Current Ratio | 4.91 |
| PB Ratio | 2.74 |
| Current Dividend | $1.60 |
| Dividend Yield | 2.51% |
| Number of Consecutive Years of Dividend Growth | 14 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 4/1/2016 |
| Total Current Assets | $3,522,200,000 |
| Total Current Liabilities | $717,800,000 |
| Long-Term Debt | $790,200,000 |
| Total Assets | $5,148,200,000 |
| Intangible Assets | $0 |
| Total Liabilities | $2,205,300,000 |
| Shares Outstanding (Diluted Average) | 126,500,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $3.36 |
| Jan2016 | $3.59 |
| Jan2015 | $3.73 |
| Jan2014 | $1.41 |
| Jan2013 | $3.25 |
| Jan2012 | $3.40 |
| Jan2011 | $2.87 |
| Jan2010 | $2.11 |
| Jan2009 | $1.74 |
| Jan2008 | $2.20 |
| Jan2007 | $1.80 |
| Jan2006 | $1.75 |
| Jan2005 | $2.05 |
| Jan2004 | $1.45 |
| Jan2003 | $1.28 |
| Jan2002 | $1.15 |
| Jan2001 | $1.26 |
| Jan2000 | $0.98 |
| Jan1999 | $0.63 |
| Jan1998 | $0.51 |
| Jan1997 | $0.42 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.23 |
| Jan2016 | $3.13 |
| Jan2015 | $2.91 |
| Jan2014 | $2.54 |
| Jan2013 | $2.96 |
| Jan2012 | $2.70 |
| Jan2011 | $2.28 |
| Jan2010 | $1.96 |
| Jan2009 | $1.90 |
| Jan2008 | $1.93 |
| Jan2007 | $1.76 |
| Jan2006 | $1.67 |
| Jan2005 | $1.56 |
| Jan2004 | $1.29 |
| Jan2003 | $1.16 |
| Jan2002 | $1.03 |
| Jan2001 | $0.90 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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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