Apparel Stocks

Abercrombie & Fitch Co Valuation – May 2018 $ANF

Company Profile (excerpt from Reuters): Abercrombie & Fitch Co., incorporated on June 26, 1996, is a specialty retailer who primarily sells its products through store and direct-to-consumer operations, as well as through various wholesale, franchise and licensing arrangements. The Company operates through two segments: Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands, and Hollister, which includes the Company’s Hollister and Gilly Hicks brands. The Company offers an array of apparel products, including knit tops, woven shirts, graphic t-shirts, fleece, sweaters, jeans, woven pants, shorts, outerwear, dresses, intimates and swimwear, and personal care products and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ANF – May 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 $1,752,616,428 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.49 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 -88.32% Fail
6. Moderate PEmg Ratio PEmg < 20 117.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.58 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 2.49 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.23
MG Growth Estimate -4.25%
MG Value $2.50
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $3.34
MG Value based on 0% Growth $1.96
Market Implied Growth Rate 54.49%
Current Price $27.10
% of Intrinsic Value 1085.21%

Abercrombie & Fitch Co. is suitable for the Enterprising Investor but not 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 is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.32 in 2015 to an estimated $0.23 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 54.49% 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 $9.62. The company pays a dividend of $0.8 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 117.49, which was above the industry average of 49.11. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.5.

Abercrombie & Fitch Co. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.50
Graham Number $9.62
PEmg 117.49
Current Ratio 2.49
PB Ratio 1.58
Current Dividend $0.80
Dividend Yield 2.95%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $1,264,538,000
Total Current Liabilities $507,546,000
Long-Term Debt $249,686,000
Total Assets $2,325,692,000
Intangible Assets $26,147,000
Total Liabilities $1,083,313,000
Shares Outstanding (Diluted Average) 72,571,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.23
Jan2018 $0.10
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.23
Jan2018 $0.29
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

Recommended Reading:

Other ModernGraham posts about the company

Abercrombie & Fitch Co Valuation – March 2017 $ANF
Abercrombie & Fitch Co Valuation – November 2015 Update $ANF
Abercrombie & Fitch Company Analysis – Initial Coverage $ANF

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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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