Apparel Stocks

PVH Corp Valuation – February 2019 $PVH

Company Profile (excerpt from Reuters): PVH Corp., incorporated on April 8, 1976, is an apparel company. The Company operates through three segments: Calvin Klein, which consists of the Calvin Klein North America and Calvin Klein International segments; Tommy Hilfiger, which consists of the Tommy Hilfiger North America and Tommy Hilfiger International segments, and Heritage Brands, which consists of the Heritage Brands Wholesale and Heritage Brands Retail segments. The Company’s brand portfolio consists of various brand names, including Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Warner’s, Olga and Eagle, which are owned, and Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, MICHAEL Michael Kors, Michael Kors Collection and Chaps, which are licensed, as well as various other licensed and private label brands. The Company designs and markets dress shirts, neckwear, sportswear, jeanswear, intimate apparel, swim products and handbags, footwear and other related products, and licenses its owned brands over a range of products. The Company sells its brands at multiple price points and across multiple channels of distribution and geographies.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PVH – February 2019

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 $8,811,035,217 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.74 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 198.44% Pass
6. Moderate PEmg Ratio PEmg < 20 15.44 Pass
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 1.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.04 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.54
MG Growth Estimate 13.61%
MG Value $269.26
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $109.31
MG Value based on 0% Growth $64.08
Market Implied Growth Rate 3.47%
Current Price $116.36
% of Intrinsic Value 43.21%

PVH Corp qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.95 in 2015 to an estimated $7.54 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.47% 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 PVH Corp revealed the company was trading below its Graham Number of $122.25. The company pays a dividend of $0.15 per share, for a yield of 0.1% Its PEmg (price over earnings per share – ModernGraham) was 15.44, which was below the industry average of 44.2, 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 $-36.86.

PVH Corp fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$36.86
Graham Number $122.25
PEmg 15.44
Current Ratio 1.74
PB Ratio 1.58
Current Dividend $0.15
Dividend Yield 0.13%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $3,307,800,000
Total Current Liabilities $1,898,600,000
Long-Term Debt $2,878,300,000
Total Assets $11,830,900,000
Intangible Assets $7,230,200,000
Total Liabilities $6,149,700,000
Shares Outstanding (Diluted Average) 77,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.26
Jan2018 $6.84
Jan2017 $6.79
Jan2016 $6.89
Jan2015 $5.27
Jan2014 $1.74
Jan2013 $5.87
Jan2012 $3.78
Jan2011 $0.81
Jan2010 $3.08
Jan2009 $3.08
Jan2008 $3.21
Jan2007 $2.64
Jan2006 $1.85
Jan2005 $1.14
Jan2004 -$0.18
Jan2003 $1.08
Jan2002 $0.38
Jan2001 $1.10
Jan2000 $0.62
Jan1999 $0.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.54
Jan2018 $6.29
Jan2017 $5.78
Jan2016 $5.08
Jan2015 $3.95
Jan2014 $3.21
Jan2013 $3.74
Jan2012 $2.72
Jan2011 $2.31
Jan2010 $2.97
Jan2009 $2.73
Jan2008 $2.28
Jan2007 $1.65
Jan2006 $1.05
Jan2005 $0.67
Jan2004 $0.49
Jan2003 $0.79

Recommended Reading:

Other ModernGraham posts about the company

PVH Corp Valuation – May 2018 $PVH
15 Best Stocks for Value Investors This Week – 1/14/17
PVH Corp Valuation – January 2017 $PVH
15 Best Undervalued Stocks of the Week – 8/20/16
PVH Corp Valuation – August 2016 $PVH

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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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