Kate Spade & Co Valuation – Initial Coverage $KATE

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 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  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 Kate Spade & Co (KATE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Kate Spade & Company is engaged in the design and marketing of a range of accessories and apparel. The Company operates through three segments, which include KATE SPADE North America, KATE SPADE International and Adelington Design Group. The KATE SPADE North America segment consists of the Company’s kate spade new york and JACK SPADE brands in North America. The KATE SPADE International segment consists of the Company’s kate spade new york and JACK SPADE brands in International markets (principally in Japan, Asia (excluding Japan), Europe and Latin America). The Adelington Design Group segment consists of exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands, and the licensed LIZWEAR and LIZ CLAIBORNE NEW YORK brands. It operates retail stores under the kate spade new york trademark, consisting of retail stores within the United States and outside the United States (primarily in Japan, Europe and Canada). It also operates outlet and concession stores.

KATE Chart

KATE data by YCharts

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KATE – February 2017

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 $2,330,907,592 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.78 Pass
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 -112.99% Fail
6. Moderate PEmg Ratio PEmg < 20 30.46 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.89 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 2.78 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.90 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.60
MG Growth Estimate 15.00%
MG Value $23.20
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $8.74
MG Value based on 0% Growth $5.12
Market Implied Growth Rate 10.98%
Current Price $18.36
% of Intrinsic Value 79.13%

Kate Spade & Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $-2.23 in 2012 to an estimated $0.6 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Kate Spade & Co revealed the company was trading above its Graham Number of $7.18. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 30.46, which was above the industry average of 22.16. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.22.

Kate Spade & Co 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) -$0.22
Graham Number $7.18
PEmg 30.46
Current Ratio 2.78
PB Ratio 6.89
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $677,046,000
Total Current Liabilities $243,732,000
Long-Term Debt $390,604,000
Total Assets $1,050,951,000
Intangible Assets $143,505,000
Total Liabilities $705,820,000
Shares Outstanding (Diluted Average) 129,451,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.85
Dec2015 $0.13
Dec2014 $1.25
Dec2013 $0.60
Dec2012 -$0.68
Dec2011 -$1.35
Dec2010 -$2.67
Dec2009 -$3.26
Dec2008 -$10.17
Dec2007 -$3.74
Dec2006 $2.46
Dec2005 $2.94
Dec2004 $2.85
Dec2003 $2.55
Dec2002 $2.16
Dec2001 $1.83
Dec2000 $1.72
Dec1999 $1.56
Dec1998 $1.29
Dec1997 $1.32
Dec1996 $1.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.60
Dec2015 $0.32
Dec2014 $0.08
Dec2013 -$0.82
Dec2012 -$2.23
Dec2011 -$3.42
Dec2010 -$4.13
Dec2009 -$4.02
Dec2008 -$3.31
Dec2007 $0.55
Dec2006 $2.66
Dec2005 $2.66
Dec2004 $2.42
Dec2003 $2.12
Dec2002 $1.84
Dec2001 $1.64
Dec2000 $1.49

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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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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