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Apparel Stocks

Wolverine World Wide Inc Valuation – May 2018 $WWW

Company Profile (excerpt from Reuters): Wolverine World Wide, Inc., incorporated on March 3, 1969, is a designer, manufacturer and marketer of a range of casual footwear and apparel, outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. It operates in four segments: Wolverine Outdoor & Lifestyle Group, which offers Merrell footwear and apparel, Cat footwear, Hush Puppies footwear and apparel, and Chaco footwear; Wolverine Boston Group, which offers Sperry footwear and apparel, Saucony footwear and apparel, and Keds footwear and apparel; Wolverine Heritage Group, which offers Wolverine footwear and apparel, Bates uniform footwear, Harley-Davidson footwear and HyTest safety footwear, and Wolverine Multi-Brand Group, which offers Stride Rite footwear and apparel, and its multi-brand consumer-direct businesses. It also operates a performance leather business. The Company’s segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. The Company’s Other category consists of the Company’s leather marketing operations and sourcing operations. The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WWW – 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 $3,070,762,470 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.18 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
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 -0.82% Fail
6. Moderate PEmg Ratio PEmg < 20 29.94 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.28 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 3.18 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.04 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 $1.09
MG Growth Estimate -0.05%
MG Value $9.18
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $15.83
MG Value based on 0% Growth $9.28
Market Implied Growth Rate 10.72%
Current Price $32.68
% of Intrinsic Value 356.11%

Wolverine World Wide, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. 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 $1.1 in 2014 to an estimated $1.09 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.72% 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 Wolverine World Wide, Inc. revealed the company was trading above its Graham Number of $21.09. The company pays a dividend of $0.24 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 29.94, 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 $-3.89.

Wolverine World Wide, 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) -$3.89
Graham Number $21.09
PEmg 29.94
Current Ratio 3.18
PB Ratio 3.28
Current Dividend $0.24
Dividend Yield 0.73%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $880,400,000
Total Current Liabilities $276,700,000
Long-Term Debt $630,300,000
Total Assets $2,204,000,000
Intangible Assets $1,109,400,000
Total Liabilities $1,252,500,000
Shares Outstanding (Diluted Average) 95,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.00
Dec2017 $0.00
Dec2016 $0.89
Dec2015 $1.20
Dec2014 $1.30
Dec2013 $0.99
Dec2012 $0.81
Dec2011 $1.24
Dec2010 $1.06
Dec2009 $0.62
Dec2008 $0.95
Dec2007 $0.85
Dec2006 $0.74
Dec2005 $0.64
Dec2004 $0.55
Dec2003 $0.43
Dec2002 $0.38
Dec2001 $0.36
Dec2000 $0.09
Dec1999 $0.26
Dec1998 $0.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.09
Dec2017 $0.72
Dec2016 $1.06
Dec2015 $1.14
Dec2014 $1.10
Dec2013 $0.98
Dec2012 $0.96
Dec2011 $1.00
Dec2010 $0.87
Dec2009 $0.77
Dec2008 $0.81
Dec2007 $0.71
Dec2006 $0.61
Dec2005 $0.52
Dec2004 $0.43
Dec2003 $0.34
Dec2002 $0.30

Recommended Reading:

Other ModernGraham posts about the company

Wolverine World Wide Inc Valuation – September 2016 $WWW
6 Best Stocks For Value Investors This Week – 5/14/16
Wolverine World Wide Inc Valuation – May 2016 $WWW
Wolverine World Wide Inc. Analysis – September 2015 Update $WWW
Wolverine World Wide Analysis – June 2015 Update $WWW

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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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