Abercrombie & Fitch Co Valuation – March 2017 $ANF

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 – February 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 Abercrombie & Fitch Co (ANF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abercrombie & Fitch Co. (A&F) is a specialty retailer that operates stores and direct-to-consumer operations. Through these channels, the Company sells products, including casual sportswear apparel, including knit tops and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters and outerwear; personal care products, and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids and Hollister brands. Its segments include Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands, and Hollister. A&F operates approximately 750 stores in the United States and over 180 stores outside of the United States. It operates Websites for each brand, both domestically and internationally. The Websites are available in over 10 languages, accepting over 30 currencies and shipping to over 120 countries. It sources merchandise through over 150 vendors located throughout the world, primarily in Asia and Central America.

ANF Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ANF – March 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 $781,579,787 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.34 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -100.00% Fail
6. Moderate PEmg Ratio PEmg < 20 171.55 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.65 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 2.34 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.40 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.07
MG Growth Estimate -4.25%
MG Value $1.27
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $1.00
MG Value based on 0% Growth $0.58
Market Implied Growth Rate 81.53%
Current Price $11.78
% of Intrinsic Value 925.02%

Abercrombie & Fitch Co. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $1.54 in 2014 to an estimated $0.07 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 81.53% 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 below the price.

At the time of valuation, further research into Abercrombie & Fitch Co. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.8 per share, for a yield of 6.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 171.55, which was above the industry average of 22.16. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.27.

Abercrombie & Fitch 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) $1.27
Graham Number $0.00
PEmg 171.55
Current Ratio 2.34
PB Ratio 0.65
Current Dividend $0.80
Dividend Yield 6.79%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2017
Total Current Assets $1,139,300,000
Total Current Liabilities $486,000,000
Long-Term Debt $262,992,000
Total Assets $2,295,757,000
Intangible Assets $0
Total Liabilities $1,052,322,000
Shares Outstanding (Diluted Average) 68,299,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.57
Jan2017 $0.06
Jan2016 $0.51
Jan2015 $0.71
Jan2014 $0.69
Jan2013 $2.85
Jan2012 $1.61
Jan2011 $1.73
Jan2010 $0.00
Jan2009 $3.05
Jan2008 $5.20
Jan2007 $4.59
Jan2006 $3.66
Jan2005 $2.28
Jan2004 $2.06
Jan2003 $1.98
Jan2002 $1.65
Jan2001 $1.55
Jan2000 $1.39
Jan1999 $0.96
Jan1998 $0.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.07
Jan2017 $0.58
Jan2016 $0.98
Jan2015 $1.32
Jan2014 $1.54
Jan2013 $1.93
Jan2012 $1.75
Jan2011 $2.19
Jan2010 $2.71
Jan2009 $3.96
Jan2008 $4.13
Jan2007 $3.37
Jan2006 $2.61
Jan2005 $2.03
Jan2004 $1.84
Jan2003 $1.66
Jan2002 $1.40

Recommended Reading:

Other ModernGraham posts about the company

Abercrombie & Fitch Co Valuation – November 2015 Update $ANF
Abercrombie & Fitch Company Analysis – Initial Coverage $ANF

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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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