Retail Stocks

Nordstrom Inc Valuation – December 2018 $JWN

Company Profile (excerpt from Reuters): Nordstrom, Inc., incorporated on September 28, 1946, is a fashion specialty retailer in the United States. The Company’s segments include Retail and Credit. As of March 20, 2017, the Company operated 344 the United States stores located in 40 states as well as an e-commerce business through Nordstrom.com, Nordstromrack.com/HauteLook and TrunkClub.com. As of January 28, 2017, the Company operated approximately three Nordstrom full-line stores, including two in Canada, and 21 Nordstrom Rack stores. The Company also offers its customers a variety of payment products and services, including credit and debit cards.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of JWN – December 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 $8,611,864,656 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 Fail
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 -0.38% Fail
6. Moderate PEmg Ratio PEmg < 20 17.84 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.28 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 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.89 Fail
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 $2.85
MG Growth Estimate -2.94%
MG Value $7.48
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $41.32
MG Value based on 0% Growth $24.22
Market Implied Growth Rate 4.67%
Current Price $50.82
% of Intrinsic Value 679.67%

Nordstrom, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings 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 $3.54 in 2015 to an estimated $2.85 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.67% 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 Nordstrom, Inc. revealed the company was trading above its Graham Number of $20.71. The company pays a dividend of $1.48 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.84, which was below the industry average of 28.23, 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 $-18.61.

Nordstrom, Inc. 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) -$18.61
Graham Number $20.71
PEmg 17.84
Current Ratio 1.12
PB Ratio 7.28
Current Dividend $1.48
Dividend Yield 2.91%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $4,297,000,000
Total Current Liabilities $3,842,000,000
Long-Term Debt $2,678,000,000
Total Assets $8,709,000,000
Intangible Assets $249,000,000
Total Liabilities $7,506,000,000
Shares Outstanding (Diluted Average) 172,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.26
Jan2018 $2.59
Jan2017 $2.02
Jan2016 $3.15
Jan2015 $3.72
Jan2014 $3.71
Jan2013 $3.56
Jan2012 $3.14
Jan2011 $2.75
Jan2010 $2.01
Jan2009 $1.83
Jan2008 $2.88
Jan2007 $2.55
Jan2006 $1.98
Jan2005 $1.39
Jan2004 $0.88
Jan2003 $0.33
Jan2002 $0.46
Jan2001 $0.39
Jan2000 $0.73
Jan1999 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.85
Jan2018 $2.78
Jan2017 $2.99
Jan2016 $3.47
Jan2015 $3.54
Jan2014 $3.31
Jan2013 $2.96
Jan2012 $2.62
Jan2011 $2.37
Jan2010 $2.21
Jan2009 $2.24
Jan2008 $2.28
Jan2007 $1.79
Jan2006 $1.28
Jan2005 $0.85
Jan2004 $0.57
Jan2003 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Nordstrom Inc Valuation – February 2018 $JWN
Nordstrom Inc Valuation – May 2016 $JWN
10 Best Stocks For Value Investors This Week – 10/31/15
Nordstrom Inc. Valuation – October 2015 Update $JWN
The Best Companies of the Retail Industry – August 2015

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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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