Shoe Carnival Inc ($SCVL) – Valuation May 2023

Company Profile (excerpt from Wikipedia):

Shoe Carnival Inc. is an American retailer of family footwear. The company operates 377 stores throughout the midwest, south, and southeast regions. It was founded by David Russell in 1978 and is headquartered in Evansville, Indiana.

The company sells men’s, women’s, children’s, and athletic footwear through its retail stores. Its stores also offer accessories such as handbags, wallets, shoe care items, and socks. The main difference in Shoe Carnival stores is its concept. The Shoe Carnival Concept is creating an urgency to buy through limited time promotions and the microphone. The mic person announces “specials” over the microphone. These specials include discount, product information, and fun specials which encourage customers to make a purchase.

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 EnterpriseMarket Cap > $2BilCurrent Market Cap$621,870,000.00FAIL
2. Sufficiently Strong Financial ConditionCurrent Ratio > 2Current Assets$469,720,000.00
Current Liabilities$157,290,000.00
Current Ratio2.99PASS
3. Earnings StabilityPositive EPS for 10 years priorYearEPS
2023-01$3.96
2022-01$5.42
2021-01$0.56
2020-01$1.46
2019-01$1.23
2018-01$0.58
2017-01$0.64
2016-01$0.73
2015-01$0.64
2014-01$0.66
Years Positive10PASS
4. Dividend RecordDividend Payments for 10 years priorYearDividend
2023-01$0.36
2022-01$0.28
2021-01$0.18
2020-01$0.17
2019-01$0.16
2018-01$0.15
2017-01$0.14
2016-01$0.13
2015-01$0.12
2014-01$0.12
Years With Payments10PASS
5. Earnings GrowthIncrease of 33% in EPS in past 10 years using 3 year averages at beginning and end
Beginning Average$0.67
End Average$3.31
Growth392.08%PASS
6. Moderate PEmg RatioPEmg < 20Price$22.89
EPSmg$3.84
PEmg5.96PASS
7. Moderate Price to AssetsPB Ratio < 2.5 OR PB*PEmg < 50Price$22.89
Book Value$19.35
PB Ratio1.18
PB*PEmg7.05PASS
Total Score6
Suitable for Defensive Investors?YES
Enterprising Investor
Must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial ConditionCurrent Ratio > 1.5Current Assets$469,720,000.00
Current Liabilities$157,290,000.00
Current Ratio2.99PASS
2. Sufficiently Strong Financial ConditionDebt to NCA < 1.1Total Debt$0.00
Current Assets$469,720,000.00
Current Liabilities$157,290,000.00
Net Current Assets$312,430,000.00
Debt to NCA0.00PASS
3. Earnings StabilityPositive EPS for 5 years priorYearEPS
2023-01$3.96
2022-01$5.42
2021-01$0.56
2020-01$1.46
2019-01$1.23
Years Positive5PASS
4. Dividend RecordCurrently Pays DividendDividend$0.36PASS
5. Earnings GrowthEPSmg greater than 5 years agoEPSmg – Current$3.15
EPSmg – Prior$0.83
Growth280.57%PASS
Total Score5
Suitable?YES

Stage 2: Determination of Intrinsic Value

MG Value Formula
Value = EPSmg * (8.5+2g)
Calculating MG Value
EPSmg$3.84
MG Growth Estimate15.00%
MG Value$147.79
Net Current Asset Value$0.20
MG Value based on 3% Growth$55.66
MG Value based on 0% Growth$32.63
Market Implied Growth Rate-1.27%
MG Opinion
Current Price$22.89
% of Intrinsic Value15.49%
OpinionUndervalued
MG Grade
FactorScore
Investor Suitability2.0
Good Price to Value?1.0
Trading Below Graham Number?1.0
Long-term Dividend Growth?0.0
Dividend Yield Above 2%?0.0
PEmg Below Industry Average?0.5
Trading Below NCAV?0.0
Total Score4.5
MG GradeA-

Shoe Carnival Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the market capitalization is below the Defensive Investor’s requirement of $2 billion, but that is not enough to disqualify the company from the Defensive Investor’s requirements. The Enterprising Investor has no concerns. 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 $1.06 in 2020 to an estimated $3.84 for 2024. This level of demonstrated earnings growth outpaces the market’s implied estimate of -1.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Shoe Carnival Inc revealed the company was trading below its Graham Number of $44.65. The company pays a dividend yield of 1.59%, which is not a significantly high dividend. Its PEmg (price over earnings per share – ModernGraham) was 5.96, which was below the industry average of 33.73, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Shoe Carnival Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Other Useful Information
Current Ratio2.99
PB Ratio1.18
Dividend Yield1.59%
Number of Consecutive Years of Dividend Growth8

Most Recent Balance Sheet Figures

Balance SheetDate
Total Current Assets$469,720,000.00
Total Current Liabilities$157,290,000.00
Long Term Debt$0.00
Total Assets$989,780,000.00
Intangible Assets$44,620,000.00
Total Liabilities$464,210,000.00
Shares Outstanding (diluted)27,430,000.00

Earnings Per Share History

Earnings
YearEPS (diluted)EPSmg
Estimated-Next FY$4.58$3.84
2023-01$3.96$3.15
2022-01$5.42$2.45
2021-01$0.56$0.94
2020-01$1.46$1.06
2019-01$1.23$0.83
2018-01$0.58$0.64
2017-01$0.64$0.67
2016-01$0.73$0.68
2015-01$0.64$0.66
2014-01$0.66$0.66
2013-01$0.72$0.61
2012-01$0.66$0.52
2011-01$0.69$0.45
2010-01$0.40$0.34
2009-01$0.14$0.33
2008-01$0.32$0.42
2007-01$0.58$0.45
2006-01$0.47$0.38
2005-01$0.32$0.33
2004-01$0.31$0.33
2003-01$0.40$0.33
2002-01$0.34$0.29
2001-01$0.26$0.25
2000-01$0.29$0.20
1999-01$0.25$0.13
1998-01$0.19$0.07

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. 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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