Apparel Stocks

Chico’s FAS Inc Valuation – May 2018 $CHS

Company Profile (excerpt from Reuters): Chico’s FAS, Inc., incorporated on December 1, 1983, is an omni-channel specialty retailer of women’s private branded, casual-to-dressy clothing, intimates and accessories, operating under the Chico’s, White House Black Market (WHBM) and Soma brand names. The Company is also engaged in the sale of merchandise in its domestic and international retail stores, its various Websites and its call center, which takes orders for all of its brands, and through an unaffiliated franchise partner in Mexico. As of January 28, 2017, it had operated 1,501 stores across 48 states, Puerto Rico, the United States Virgin Islands and Canada, and sold merchandise through 91 franchise locations in Mexico. Its boutiques are located in indoor shopping malls, outdoor shopping areas and standalone street-front locations. Its outlet stores are primarily located in outlet centers. Its merchandise is also sold through franchise locations in Mexico, including boutique locations, as well as shop-in-shop formats within a department store environment.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CHS – 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 $1,382,209,368 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.93 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 17.30% Fail
6. Moderate PEmg Ratio PEmg < 20 17.70 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.05 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 1.93 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.22 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 $0.61
MG Growth Estimate -0.23%
MG Value $4.89
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $8.82
MG Value based on 0% Growth $5.17
Market Implied Growth Rate 4.60%
Current Price $10.76
% of Intrinsic Value 219.94%

Chico’s FAS, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. 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 $0.62 in 2015 to an estimated $0.61 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.6% 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 Chico’s FAS, Inc. revealed the company was trading above its Graham Number of $9.01. The company pays a dividend of $0.33 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.7, which was below the industry average of 49.11, 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 $0.67.

Chico’s FAS, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.67
Graham Number $9.01
PEmg 17.70
Current Ratio 1.93
PB Ratio 2.05
Current Dividend $0.33
Dividend Yield 3.07%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $514,525,000
Total Current Liabilities $266,968,000
Long-Term Debt $53,601,000
Total Assets $1,087,605,000
Intangible Assets $135,704,000
Total Liabilities $431,223,000
Shares Outstanding (Diluted Average) 124,839,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.69
Jan2018 $0.79
Jan2017 $0.69
Jan2016 $0.01
Jan2015 $0.42
Jan2014 $0.41
Jan2013 $1.08
Jan2012 $0.82
Jan2011 $0.64
Jan2010 $0.39
Jan2009 -$0.11
Jan2008 $0.50
Jan2007 $0.93
Jan2006 $1.06
Jan2005 $0.78
Jan2004 $0.57
Jan2003 $0.39
Jan2002 $0.25
Jan2001 $0.17
Jan2000 $0.10
Jan1999 $0.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.61
Jan2018 $0.53
Jan2017 $0.44
Jan2016 $0.40
Jan2015 $0.62
Jan2014 $0.70
Jan2013 $0.75
Jan2012 $0.54
Jan2011 $0.42
Jan2010 $0.40
Jan2009 $0.48
Jan2008 $0.77
Jan2007 $0.85
Jan2006 $0.74
Jan2005 $0.54
Jan2004 $0.37
Jan2003 $0.25

Recommended Reading:

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Chico’s FAS Inc Valuation – Initial Coverage $CHS

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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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