Michael Kors Holdings Ltd Valuation – March 2018 $KORS

Company Profile (excerpt from Reuters): Michael Kors Holdings Limited, incorporated on December 13, 2002, is a designer, marketer, distributor and retailer of branded women’s apparel and accessories and men’s apparel bearing the Michael Kors tradename and related trademarks MICHAEL KORS, MICHAEL MICHAEL KORS, and various other related trademarks and logos. The Company operates through three segments: retail, wholesale and licensing. The Retail operations consist of collection stores and lifestyle stores, including concessions and outlet stores, located primarily in the Americas (the United States, Canada and Latin America), Europe and Asia, as well as e-commerce. Wholesale revenues are principally derived from major department and specialty stores located throughout the Americas, Europe and Asia. The Company licenses its trademarks on products, such as fragrances, beauty, eyewear, leather goods, jewelry, watches, coats, men’s suits, swimwear, furs and ties, as well as through geographic licenses.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of KORS – March 2018

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 $9,306,089,256 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.00 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 1803.23% Pass
6. Moderate PEmg Ratio PEmg < 20 15.65 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.55 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 2.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.37 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.91
MG Growth Estimate 15.00%
MG Value $150.43
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $56.66
MG Value based on 0% Growth $33.21
Market Implied Growth Rate 3.58%
Current Price $61.15
% of Intrinsic Value 40.65%

Michael Kors Holdings Ltd 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 over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, 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 Undervalued after growing its EPSmg (normalized earnings) from $1.82 in 2014 to an estimated $3.91 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.58% 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 above the price.

At the time of valuation, further research into Michael Kors Holdings Ltd revealed the company was trading above its Graham Number of $29.96. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 15.65, which was below the industry average of 40.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.5.

Michael Kors Holdings Ltd receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.50
Graham Number $29.96
PEmg 15.65
Current Ratio 2.00
PB Ratio 4.55
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 12/1/2017
Total Current Assets $1,444,600,000
Total Current Liabilities $722,100,000
Long-Term Debt $992,400,000
Total Assets $4,216,800,000
Intangible Assets $2,037,400,000
Total Liabilities $2,139,900,000
Shares Outstanding (Diluted Average) 154,623,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.07
Mar2017 $3.29
Mar2016 $4.44
Mar2015 $4.28
Mar2014 $3.22
Mar2013 $1.97
Mar2012 $0.78
Mar2011 $0.40
Mar2010 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.91
Mar2017 $3.70
Mar2016 $3.58
Mar2015 $2.81
Mar2014 $1.82
Mar2013 $0.97
Mar2012 $0.41
Mar2011 $0.19
Mar2010 $0.07

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 1/9/16
Michael Kors Holdings Ltd Valuation – January 2016 Update $KORS
10 Most Undervalued Companies for the Enterprising Investor – November 2015
13 Best Stocks For Value Investors This Week – 10/3/15
Michael Kors Holdings Limited Analysis – October 2015 Update $KORS

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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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