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American Eagle Outfitters Inc Valuation – May 2018 $AEO

Company Profile (excerpt from Reuters): American Eagle Outfitters, Inc. (AEO Inc.), incorporated on January 26, 1972, is a multi-brand specialty retailer. The Company offers a range of apparel and accessories for men and women under the American Eagle Outfitters Brand (AEO Brand), and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. As of January 28, 2017, the Company operated over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. Its company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom.

AEO Chart

AEO data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AEO – 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 $3,848,209,366 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.00 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 59.65% Pass
6. Moderate PEmg Ratio PEmg < 20 19.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.25 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 2.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.16
MG Growth Estimate 12.34%
MG Value $38.47
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $16.81
MG Value based on 0% Growth $9.85
Market Implied Growth Rate 5.47%
Current Price $22.54
% of Intrinsic Value 58.59%

American Eagle Outfitters is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has no initial concerns. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.64 in 2015 to an estimated $1.16 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.47% 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 American Eagle Outfitters revealed the company was trading above its Graham Number of $14.5. The company pays a dividend of $0.5 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.44, 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 $2.22.

American Eagle Outfitters performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.22
Graham Number $14.50
PEmg 19.44
Current Ratio 2.00
PB Ratio 3.25
Current Dividend $0.50
Dividend Yield 2.22%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $968,530,000
Total Current Liabilities $485,221,000
Long-Term Debt $0
Total Assets $1,816,313,000
Intangible Assets $61,736,000
Total Liabilities $569,522,000
Shares Outstanding (Diluted Average) 179,844,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.35
Jan2018 $1.13
Jan2017 $1.16
Jan2016 $1.11
Jan2015 $0.42
Jan2014 $0.43
Jan2013 $1.16
Jan2012 $0.77
Jan2011 $0.70
Jan2010 $0.81
Jan2009 $0.86
Jan2008 $1.82
Jan2007 $1.70
Jan2006 $1.26
Jan2005 $0.95
Jan2004 $0.38
Jan2003 $0.40
Jan2002 $0.48
Jan2001 $0.43
Jan2000 $0.41
Jan1999 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.16
Jan2018 $0.99
Jan2017 $0.90
Jan2016 $0.77
Jan2015 $0.64
Jan2014 $0.75
Jan2013 $0.90
Jan2012 $0.84
Jan2011 $0.98
Jan2010 $1.17
Jan2009 $1.34
Jan2008 $1.46
Jan2007 $1.17
Jan2006 $0.83
Jan2005 $0.59
Jan2004 $0.41
Jan2003 $0.42

Recommended Reading:

Other ModernGraham posts about the company

American Eagle Outfitters Valuation – January 2017 $AEO
American Eagle Outfitters Valuation – August 2016 $AEO
American Eagle Outfitters Valuation – February 2016 $AEO
American Eagle Outfitters Valuation – November 2015 Update $AEO
American Eagle Outfitters Analysis – Initial Coverage $AEO

Other ModernGraham posts about related companies

Gap Inc Valuation – May 2018 $GPS
PVH Corp Valuation – May 2018 $PVH
VF Corp Valuation – April 2018 $VFC
Michael Kors Holdings Ltd Valuation – March 2018 $KORS
Foot Locker Inc Valuation – March 2018 $FL
Under Armour Inc Valuation – March 2018 $UA
Hanesbrands Inc Valuation – March 2018 $HBI
L Brands Inc Valuation – March 2018 $LB
Nike Inc Valuation – February 2018 $NKE
Nike Inc Valuation – July 2017 $NKE

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.

American Eagle Outfitters Valuation – January 2017 $AEO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Eagle Outfitters (AEO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Eagle Outfitters, Inc. (AEO Inc.) is a specialty retailer, operating over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. The Company operates in the segment of American Eagle Outfitters Brand (AEO Brand) retail stores, Aerie by American Eagle Outfitters retail stores and AEO Direct. It offers an assortment of apparel and accessories for men and women under the American Eagle Outfitters brand, and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. It also has license agreements with third parties to operate American Eagle Outfitters and Aerie stores throughout Asia, Europe, Latin America and the Middle East. It operates over 950 American Eagle Outfitters stores and approximately 100 Aerie stand-alone stores. The Company has store base in approximately 140 locations in over 20 countries.

AEO Chart

AEO data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AEO – January 2017

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 $2,900,824,913 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.66 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 -20.63% Fail
6. Moderate PEmg Ratio PEmg < 20 16.86 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.47 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 1.66 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.93
MG Growth Estimate 0.51%
MG Value $8.84
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $13.46
MG Value based on 0% Growth $7.89
Market Implied Growth Rate 4.18%
Current Price $15.65
% of Intrinsic Value 177.05%

American Eagle Outfitters is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has no initial concerns. 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 growing its EPSmg (normalized earnings) from $0.9 in 2013 to an estimated $0.93 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.18% 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 American Eagle Outfitters revealed the company was trading above its Graham Number of $13.41. The company pays a dividend of $0.5 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.86, which was below the industry average of 22.16, 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 $1.55.

American Eagle Outfitters receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.55
Graham Number $13.41
PEmg 16.86
Current Ratio 1.66
PB Ratio 2.47
Current Dividend $0.50
Dividend Yield 3.19%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $936,849,000
Total Current Liabilities $562,879,000
Long-Term Debt $0
Total Assets $1,822,540,000
Intangible Assets $67,308,000
Total Liabilities $650,580,000
Shares Outstanding (Diluted Average) 184,615,000

Earnings Per Share History

Next Fiscal Year Estimate $1.24
Jan2016 $1.11
Jan2015 $0.42
Jan2014 $0.43
Jan2013 $1.16
Jan2012 $0.77
Jan2011 $0.70
Jan2010 $0.81
Jan2009 $0.86
Jan2008 $1.82
Jan2007 $1.70
Jan2006 $1.26
Jan2005 $0.95
Jan2004 $0.38
Jan2003 $0.40
Jan2002 $0.48
Jan2001 $0.43
Jan2000 $0.41
Jan1999 $0.25
Jan1998 $0.10
Jan1997 $0.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.93
Jan2016 $0.77
Jan2015 $0.64
Jan2014 $0.75
Jan2013 $0.90
Jan2012 $0.84
Jan2011 $0.98
Jan2010 $1.17
Jan2009 $1.34
Jan2008 $1.46
Jan2007 $1.17
Jan2006 $0.83
Jan2005 $0.59
Jan2004 $0.41
Jan2003 $0.42
Jan2002 $0.40
Jan2001 $0.32

Recommended Reading:

Other ModernGraham posts about the company

American Eagle Outfitters Valuation – August 2016 $AEO
American Eagle Outfitters Valuation – February 2016 $AEO
American Eagle Outfitters Valuation – November 2015 Update $AEO
American Eagle Outfitters Analysis – Initial Coverage $AEO

Other ModernGraham posts about related companies

Chico’s FAS Inc Valuation – Initial Coverage $CHS
Hanesbrands Inc Valuation – December 2016 $HBI
Nike Inc Valuation – November 2016 $NKE
Wolverine World Wide Inc Valuation – September 2016 $WWW
Ralph Lauren Corp Valuation – August 2016 $RL
Gap Inc Valuation – August 2016 $GPS
PVH Corp Valuation – August 2016 $PVH
American Eagle Outfitters Valuation – August 2016 $AEO
Hanesbrands Inc Valuation – August 2016 $HBI
VF Corp Valuation – August 2016 $VFC

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.

American Eagle Outfitters Valuation – August 2016 $AEO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Eagle Outfitters (AEO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Eagle Outfitters, Inc. (AEO Inc.) is a specialty retailer, operating over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. The Company operates in the segment of American Eagle Outfitters Brand (AEO Brand) retail stores, Aerie by American Eagle Outfitters retail stores and AEO Direct. It offers an assortment of apparel and accessories for men and women under the American Eagle Outfitters brand, and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. It also has license agreements with third parties to operate American Eagle Outfitters and Aerie stores throughout Asia, Europe, Latin America and the Middle East. It operates over 950 American Eagle Outfitters stores and approximately 100 Aerie stand-alone stores. The Company has store base in approximately 140 locations in over 20 countries.

AEO Chart

AEO data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AEO – August 2016

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 $3,357,660,984 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 -22.06% Fail
6. Moderate PEmg Ratio PEmg < 20 20.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.12 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 1.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 Pass

Stage 2: Determination of Intrinsic Value

AEO value chart August 2016

EPSmg $0.91
MG Growth Estimate 0.23%
MG Value $8.17
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $13.21
MG Value based on 0% Growth $7.75
Market Implied Growth Rate 5.85%
Current Price $18.40
% of Intrinsic Value 225.13%

American Eagle Outfitters is suitable for the Enterprising Investor but not 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 PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 growing its EPSmg (normalized earnings) from $0.9 in 2013 to an estimated $0.91 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.85% 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 American Eagle Outfitters revealed the company was trading above its Graham Number of $12.63. The company pays a dividend of $0.5 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.19, which was below the industry average of 26.26, 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 $1.15.

American Eagle Outfitters receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

AEO charts August 2016

Net Current Asset Value (NCAV) $1.15
Graham Number $12.63
PEmg 20.19
Current Ratio 1.74
PB Ratio 3.12
Current Dividend $0.50
Dividend Yield 2.72%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $729,327,000
Total Current Liabilities $418,486,000
Long-Term Debt $0
Total Assets $1,596,296,000
Intangible Assets $68,952,000
Total Liabilities $518,988,000
Shares Outstanding (Diluted Average) 182,927,000

Earnings Per Share History

Next Fiscal Year Estimate $1.19
Jan2016 $1.11
Jan2015 $0.42
Jan2014 $0.43
Jan2013 $1.16
Jan2012 $0.77
Jan2011 $0.70
Jan2010 $0.81
Jan2009 $0.86
Jan2008 $1.82
Jan2007 $1.70
Jan2006 $1.89
Jan2005 $1.42
Jan2004 $0.28
Jan2003 $1.22
Jan2002 $1.43
Jan2001 $1.30
Jan2000 $1.86
Jan1999 $1.13
Jan1998 $0.10
Jan1997 $0.39

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.91
Jan2016 $0.77
Jan2015 $0.64
Jan2014 $0.75
Jan2013 $0.90
Jan2012 $0.84
Jan2011 $0.98
Jan2010 $1.22
Jan2009 $1.46
Jan2008 $1.65
Jan2007 $1.47
Jan2006 $1.32
Jan2005 $1.07
Jan2004 $1.00
Jan2003 $1.37
Jan2002 $1.35
Jan2001 $1.19

Recommended Reading:

Other ModernGraham posts about the company

American Eagle Outfitters Valuation – February 2016 $AEO
American Eagle Outfitters Valuation – November 2015 Update $AEO
American Eagle Outfitters Valuation – November 2015 Update $AEO
American Eagle Outfitters Analysis – Initial Coverage $AEO

Other ModernGraham posts about related companies

Hanesbrands Inc Valuation – August 2016 $HBI
VF Corp Valuation – August 2016 $VFC
L Brands Inc Valuation – July 2016 $LB
Michael Kors Holdings Ltd Valuation – July 2016 $KORS
Under Armour Inc Valuation – June 2016 $UA
Nike Inc. Valuation – May 2016 $NKE
Wolverine World Wide Inc Valuation – May 2016 $WWW
Ralph Lauren Corp Stock Valuation – February 2016 $RL
Gap Inc Valuation – February 2016 $GPS
American Eagle Outfitters Valuation – February 2016 $AEO

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.

American Eagle Outfitters Valuation – February 2016 $AEO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Eagle Outfitters (AEO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Eagle Outfitters, Inc. is an apparel and accessories retailer. The Company offers clothing, accessories and personal care products. The Company operates under the American Eagle Outfitters and aerie by American Eagle Outfitters brands. The American Eagle Outfitters brand offers denims, pants, shorts, sweaters, fleece, outerwear, graphic t-shirts, footwear and accessories. The aerie brand is a collection of intimates and personal care products for women, such as bras and undies at the core, and offerings in sleep, swim and apparel. The Company offers its products online at ae.com and aerie.com and at various international store locations managed by third-party operators. The Company operates around 1,000 retail stores in the United States and internationally, 955 American Eagle Outfitters stores, 101 aerie stand-alone stores and 99 third-party operated stores. The Company has stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AEO

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 $2,763,826,996 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.82 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 -55.48% Fail
6. Moderate PEmg Ratio PEmg < 20 18.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.29 Pass
Score
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 1.82 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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

AEO value chart February 2016

EPSmg $0.77
MG Growth Estimate -1.26%
MG Value $4.61
Opinion Overvalued
MG Value based on 3% Growth $11.17
MG Value based on 0% Growth $6.55
Market Implied Growth Rate 4.83%
Current Price $14.00
% of Intrinsic Value 303.77%

American Eagle Outfitters qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio as well as the insufficient earnings growth over the last ten years.  The Enterprising Investor is only initially concerned by the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.84 in 2012 to an estimated $0.77 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.83% 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 below the price.

Stage 3: Information for Further Research

AEO charts February 2016

Net Current Asset Value (NCAV) $1.88
Graham Number $12.41
PEmg 18.17
Current Ratio 1.82
PB Ratio 2.29
Dividend Yield 3.57%
Number of Consecutive Years of Dividend Growth 3

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $1,050,347,000
Total Current Liabilities $578,143,000
Long-Term Debt $0
Total Assets $1,887,836,000
Intangible Assets $59,734,000
Total Liabilities $678,563,000
Shares Outstanding (Diluted Average) 197,478,000

Earnings Per Share History

Next Fiscal Year Estimate $1.10
Jan2015 $0.42
Jan2014 $0.43
Jan2013 $1.16
Jan2012 $0.77
Jan2011 $0.70
Jan2010 $0.81
Jan2009 $0.86
Jan2008 $1.82
Jan2007 $1.70
Jan2006 $1.26
Jan2005 $0.95
Jan2004 $0.38
Jan2003 $0.40
Jan2002 $0.48
Jan2001 $0.43
Jan2000 $0.41
Jan1999 $0.25
Jan1998 $0.10
Jan1997 $0.07
Jan1996 -$0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.77
Jan2015 $0.64
Jan2014 $0.75
Jan2013 $0.90
Jan2012 $0.84
Jan2011 $0.98
Jan2010 $1.17
Jan2009 $1.34
Jan2008 $1.46
Jan2007 $1.17
Jan2006 $0.83
Jan2005 $0.59
Jan2004 $0.41
Jan2003 $0.42
Jan2002 $0.40
Jan2001 $0.32
Jan2000 $0.23

Recommended Reading:

Other ModernGraham posts about the company

American Eagle Outfitters Valuation – November 2015 Update $AEO
American Eagle Outfitters Analysis – Initial Coverage $AEO

Other ModernGraham posts about related companies

Hanesbrands Inc Valuation – February 2016 Update $HBI
VF Corporation Valuation – February 2016 Update $VFC
L Brands Inc Valuation – January 2016 Update $LB
Michael Kors Holdings Ltd Valuation – January 2016 Update $KORS
Abercrombie & Fitch Co Valuation – November 2015 Update $ANF
Nike Inc. Valuation – November 2015 Update $NKE
American Eagle Outfitters Valuation – November 2015 Update $AEO
Hanesbrands Inc. Valuation – November 2015 Update $HBI
Under Armour Inc Valuation – October 2015 Update $UA
Michael Kors Holdings Limited Analysis – October 2015 Update $KORS

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.

American Eagle Outfitters Valuation – November 2015 Update $AEO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Eagle Outfitters (AEO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Eagle Outfitters, Inc. is an apparel and accessories retailer. The Company offers clothing, accessories and personal care products. The Company operates under the American Eagle Outfitters and aerie by American Eagle Outfitters brands. The American Eagle Outfitters brand offers denims, pants, shorts, sweaters, fleece, outerwear, graphic t-shirts, footwear and accessories. The aerie brand is a collection of intimates and personal care products for women, such as bras and undies at the core, and offerings in sleep, swim and apparel. The Company offers its products online at ae.com and aerie.com and at various international store locations managed by third-party operators. The Company operates around 1,000 retail stores in the United States and internationally, 955 American Eagle Outfitters stores, 101 aerie stand-alone stores and 99 third-party operated stores. The Company has stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AEO – November 2015

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 $3,246,170,650 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 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 -58.22% Fail
6. Moderate PEmg Ratio PEmg < 20 22.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.80 Fail
Score
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 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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

AEO value Chart November 2015

EPSmg $0.73
MG Growth Estimate -1.97%
MG Value $3.33
Opinion Overvalued
MG Value based on 3% Growth $10.59
MG Value based on 0% Growth $6.21
Market Implied Growth Rate 7.08%
Current Price $16.56
% of Intrinsic Value 497.69%

American Eagle Outfitters qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.84 in 2012 to an estimated $0.73 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 7.08% 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 below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on American Eagle Outfitters (AEO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AEO Charts November 2015

Net Current Asset Value (NCAV) $1.67
Graham Number $11.46
PEmg 22.66
Current Ratio 1.88
PB Ratio 2.80
Dividend Yield 3.02%
Number of Consecutive Years of Dividend Growth 3

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $922,975,000
Total Current Liabilities $492,144,000
Long-Term Debt $0
Total Assets $1,760,209,000
Intangible Assets $60,160,000
Total Liabilities $594,531,000
Shares Outstanding (Diluted Average) 196,885,000

Earnings Per Share History

Next Fiscal Year Estimate $0.98
Jan15 $0.42
Jan14 $0.43
Jan13 $1.16
Jan12 $0.77
Jan11 $0.70
Jan10 $0.81
Jan09 $0.86
Jan08 $1.82
Jan07 $1.70
Jan06 $1.26
Jan05 $0.95
Jan04 $0.38
Jan03 $0.40
Jan02 $0.48
Jan01 $0.43
Jan00 $0.41
Jan99 $0.25
Jan98 $0.10
Jan97 $0.07
Jan96 -$0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.73
Jan15 $0.64
Jan14 $0.75
Jan13 $0.90
Jan12 $0.84
Jan11 $0.98
Jan10 $1.17
Jan09 $1.34
Jan08 $1.46
Jan07 $1.17
Jan06 $0.83
Jan05 $0.59
Jan04 $0.41
Jan03 $0.42
Jan02 $0.40
Jan01 $0.32
Jan00 $0.23

Recommended Reading:

Other ModernGraham posts about the company

American Eagle Outfitters Analysis – Initial Coverage $AEO

Other ModernGraham posts about related companies

Hanesbrands Inc. Valuation – November 2015 Update $HBI
Under Armour Inc Valuation – October 2015 Update $UA
Michael Kors Holdings Limited Analysis – October 2015 Update $KORS
Wolverine World Wide Inc. Analysis – September 2015 Update $WWW
Ralph Lauren Corporation Analysis – September 2015 Update $RL
Gap Inc Analysis – September 2015 Update $GPS
VF Corporation Analysis – September 2015 Update $VFC
L Brands Inc. Analysis – August 2015 Update $LB
Abercrombie & Fitch Company Analysis – Initial Coverage $ANF
Nike Inc. Analysis – August 2015 Update $NKE

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.

American Eagle Outfitters Analysis – Initial Coverage $AEO

1743_american_eagle_outfitters_san_di_imgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Eagle Outfitters (AEO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Eagle Outfitters, Inc. is an apparel and accessories retailer. The Company offers clothing, accessories and personal care products. The Company operates under the American Eagle Outfitters and aerie by American Eagle Outfitters brands. The American Eagle Outfitters brand offers denims, pants, shorts, sweaters, fleece, outerwear, graphic t-shirts, footwear and accessories. The aerie brand is a collection of intimates and personal care products for women, such as bras and undies at the core, and offerings in sleep, swim and apparel. The Company offers its products online at ae.com and aerie.com and at various international store locations managed by third-party operators. The Company operates around 1,000 retail stores in the United States and internationally, 955 American Eagle Outfitters stores, 101 aerie stand-alone stores and 99 third-party operated stores. The Company has stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years -PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $17.35
MG Value $2.44
MG Opinion Overvalued
Value Based on 3% Growth $10.16
Value Based on 0% Growth $5.96
Market Implied Growth Rate 8.13%
Net Current Asset Value (NCAV) $1.70
PEmg 24.76
Current Ratio 2.00
PB Ratio 2.97

Balance Sheet – April 2015

Current Assets $860,000,000
Current Liabilities $429,000,000
Total Debt $0
Total Assets $1,673,000,000
Intangible Assets $61,000,000
Total Liabilities $527,000,000
Outstanding Shares 195,900,000

Earnings Per Share

2016 (estimate) $0.89
2015 $0.42
2014 $0.43
2013 $1.16
2012 $0.77
2011 $0.70
2010 $0.81
2009 $0.86
2008 $1.82
2007 $1.70
2006 $1.26

Earnings Per Share – ModernGraham

2016 (estimate) $0.70
2015 $0.64
2014 $0.75
2013 $0.90
2012 $0.84
2011 $0.98

Dividend History

Free Cash Flow

Conclusion:

American Eagle Outfitters qualifies 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 as well as the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.84 in 2012 to an estimated $0.70 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.13% 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 below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on American Eagle Outfitters (AEO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Valuation: American Eagle Outfitters (AEO)

Our Mid-Cap Company of the Week…

View the AEO WikiChart on Wikinvest

Company Profile: American Eagle Outfitters (AEO) (obtained via Google Finance)

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates ae.com, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE’s original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

1) Is the business simple and understandable?

American eagle is in the retail business.  Retail has its ups and downs (currently it’s in a down), but it is and always has been a simple and understandable business.  After all, people have been buying and selling various items in marketplaces for millenia.  Today, it’s not all that different than it was in ancient Rome – sure there is the whole internet thing, but really that’s more a different method of communication and a new marketplace, not necessarily a trait that makes the business itself more complicated.

2) Does the business have a consistent operating history?

The company was formed in 1977 and has consistently operated as a clothing retailer.  In terms of its operating strategy, that hasn’t changed.  As for financial operating history, the company has maintained a positive net income for over ten years despite fluctuations in the industry. 

3) Does the business have favorable long term prospects?

The retail industry faces significant issues whenever consumer discretionary spending drops – and we are currently witnessing that part of the business cycle.  However, we feel confident in American Eagle’s long-term prospects given their balance sheet strength (current ratio of 2.3, and they could pay off all of their liabilities with current assets alone).  A company with a balance sheet this strong can withstand issues in the business cycle and we expect that American Eagle will be around for a long time to come.

4) Is management rational?

We consider the management of AEO to be very rational in their business activities and decision making.  This is another fact that is evidenced by the strength of the balance sheet.  The company does not attempt to grow faster than it is able to by limiting its debt obligations. 

5) Is management candid with its shareholders?

Though we are disappointed in the amount of information provided on the company’s website, we are encouraged by the fact that the company does not seem to hide anything from its shareholders, and provides all the necessary information and ways to request further information.

Financial and Value Review

Click here for a review of our method of screening companies.

Defensive:

1) Size of firm

This company’s market capitalization of $2.76 billion is greater than the defensive investor’s requirement of $2 billion.  Pass.

2) Strong financial condition

The current ratio of 2.3 is greater than 2. Pass.

3) Earnings stability

This company has had positive net income for the prior 10 years. Pass.

4) Dividend record

The company has only paid a dividend since 2004 – not a long enough dividend history for the defensive investor.  Fail

5) Earnings growth

American Eagle has grown its earnings by more than 33% over the last 10 years.  Pass.

6) Price to earnings analysis

The PEmg is currently about 9, which is less than the requirement of 20.  Pass.

7) Price to assets analysis

The PB ratio is less than 2.5 (and the PBxPE ratio is less than 50).  Pass.

Overall

Having passed 6 out of the 7 required defensive investor’s tests, we believe that American Eagle Outfitters may be a suitable investment for the defensive investor following Benjamin Graham’s investment strategies.

Enterprising:

1) Strong financial condition

This company current ratio is higher than 1.5.  Pass.

2)  Strong financial condition

The company’s debt to net current assets ratio is less than 1.1.  Pass.

3) Earnings stability

AEO has consistently maintained a positive net income for the past 5 years. Pass.

4) Dividend record

They currently pay dividends. Pass.

5) Earnings growth

The company’s earnings are currently higher than they were 5 years ago.  Pass.

OverallHaving passed all of the Enterprising tests, we feel that American Eagle may be suitable as an investment for the enterprising investor. 

Valuation:

Our valuation model finds a fair value to be around $34.

Opinion:

Since the company is currently trading at about $13.40, we feel it is currently undervalued and that it may be a suitable company for either the defensive or enterprising investor.  However, we recommend further research by the reader prior to making any investment decisions.

The author did not hold a position in AEO at the time of publication. Also, please read our disclaimer and Our Methods.

Foot Locker Inc Valuation – January 2019 $FL

Company Profile (excerpt from Reuters): Foot Locker, Inc., incorporated on April 7, 1989, is a retailer of shoes and apparel. The Company operates through two segments: Athletic Stores and Direct-to-Customers. As of January 28, 2017, the Company operated 3,363 primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in the United States, Canada, Europe, Australia and New Zealand. As of January 28, 2017, the Company operated franchised stores in Germany under the Runners Point banner. A total of 74 franchised stores were operating as of January 28, 2017, of which 54 were operating in the Middle East, 15 in Germany, and five in the Republic of Korea.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FL – January 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 $6,378,285,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.42 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 269.09% Pass
6. Moderate PEmg Ratio PEmg < 20 14.69 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.65 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 3.42 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.07 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.85
MG Growth Estimate 5.80%
MG Value $77.32
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $55.78
MG Value based on 0% Growth $32.70
Market Implied Growth Rate 3.09%
Current Price $56.50
% of Intrinsic Value 73.07%

Foot Locker, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial 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 $2.77 in 2015 to an estimated $3.85 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.09% 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 Foot Locker, Inc. revealed the company was trading above its Graham Number of $46.49. The company pays a dividend of $1.24 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.69, which was below the industry average of 32.21, 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 $9.99.

Foot Locker, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $9.99
Graham Number $46.49
PEmg 14.69
Current Ratio 3.42
PB Ratio 2.65
Current Dividend $1.24
Dividend Yield 2.19%
Number of Consecutive Years of Dividend Growth 7

Useful Links

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $2,378,000,000
Total Current Liabilities $695,000,000
Long-Term Debt $124,000,000
Total Assets $3,680,000,000
Intangible Assets $196,000,000
Total Liabilities $1,229,000,000
Shares Outstanding (Diluted Average) 115,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.57
Jan2018 $2.22
Jan2017 $4.91
Jan2016 $3.84
Jan2015 $3.56
Jan2014 $2.85
Jan2013 $2.58
Jan2012 $1.80
Jan2011 $1.07
Jan2010 $0.30
Jan2009 -$0.52
Jan2008 $0.29
Jan2007 $1.60
Jan2006 $1.68
Jan2005 $1.88
Jan2004 $1.39
Jan2003 $1.05
Jan2002 $0.64
Jan2001 -$1.74
Jan2000 $0.43
Jan1999 -$1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.85
Jan2018 $3.48
Jan2017 $3.92
Jan2016 $3.26
Jan2015 $2.77
Jan2014 $2.16
Jan2013 $1.56
Jan2012 $0.90
Jan2011 $0.48
Jan2010 $0.34
Jan2009 $0.57
Jan2008 $1.20
Jan2007 $1.61
Jan2006 $1.52
Jan2005 $1.18
Jan2004 $0.67
Jan2003 $0.16

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – March 2018
Foot Locker Inc Valuation – March 2018 $FL
Best Stocks Below Their Graham Number – August 2017
10 Undervalued Stocks for the Enterprising Investor – August 2017
10 Undervalued Stocks for the Enterprising Investor – July 2017

Other ModernGraham posts about related companies

Under Armour Inc Valuation – January 2019 $UA
Hanesbrands Inc Valuation – January 2019 $HBI
L Brands Inc Valuation – January 2019 $LB
Nike Inc Valuation – November 2018 $NKE
Deckers Outdoor Corp Valuation – May 2018 $DECK
Ralph Lauren Corp Valuation – May 2018 $RL
Abercrombie & Fitch Co Valuation – May 2018 $ANF
Steven Madden Ltd Valuation – May 2018 $SHOO
Stage Stores Inc Valuation – May 2018 $SSI
American Eagle Outfitters Inc Valuation – May 2018 $AEO

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.

Under Armour Inc Valuation – January 2019 $UA

Company Profile (excerpt from Reuters): Under Armour, Inc., incorporated on July 01, 1996, is engaged in the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The Company’s segments include North America, consisting of the United States and Canada; Europe, the Middle East and Africa (EMEA); Asia-Pacific; Latin America, and Connected Fitness. The Company’s products are sold across the world and worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of UA – January 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 $8,204,928,840 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.99 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -55.26% Fail
6. Moderate PEmg Ratio PEmg < 20 140.26 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.97 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 1.99 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.55 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.13
MG Growth Estimate -4.25%
MG Value $0.81
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $1.82
MG Value based on 0% Growth $1.07
Market Implied Growth Rate 65.88%
Current Price $17.65
% of Intrinsic Value 2176.37%

Under Armour Inc Class C 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 stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. 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 $0.36 in 2014 to an estimated $0.13 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 65.88% 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 Under Armour Inc Class C revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 140.26, which was above the industry average of 32.21. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.81.

Under Armour Inc Class C scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.81
Graham Number $0.00
PEmg 140.26
Current Ratio 1.99
PB Ratio 3.97
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,587,030,000
Total Current Liabilities $1,299,739,000
Long-Term Debt $703,455,000
Total Assets $4,227,169,000
Intangible Assets $595,000,000
Total Liabilities $2,221,248,000
Shares Outstanding (Diluted Average) 451,035,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.11
Dec2017 -$0.11
Dec2016 $0.45
Dec2015 $0.53
Dec2014 $0.47
Dec2013 $0.38
Dec2012 $0.31
Dec2011 $0.23
Dec2010 $0.17
Dec2009 $0.12
Dec2008 $0.10
Dec2007 $0.13
Dec2006 $0.10
Dec2005 $0.05
Dec2004 $0.05
Dec2003 $0.02
Dec2002 $0.01
Dec2001 $0.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.13
Dec2017 $0.28
Dec2016 $0.46
Dec2015 $0.43
Dec2014 $0.36
Dec2013 $0.28
Dec2012 $0.22
Dec2011 $0.17
Dec2010 $0.13
Dec2009 $0.11
Dec2008 $0.10
Dec2007 $0.09
Dec2006 $0.06
Dec2005 $0.03
Dec2004 $0.03
Dec2003 $0.01
Dec2002 $0.01

Recommended Reading:

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Under Armour Inc Valuation – June 2016 $UA
Under Armour Inc Valuation – October 2015 Update $UA
Under Armour Inc. Analysis – Initial Coverage $UA

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Hanesbrands Inc Valuation – January 2019 $HBI
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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.

Hanesbrands Inc Valuation – January 2019 $HBI

Company Profile (excerpt from Reuters): Hanesbrands Inc., incorporated on September 30, 2005, is a marketer of basic innerwear and activewear apparel in the Americas, Europe, Australia and Asia/Pacific. The Company operates through four segments: Innerwear, Activewear, Direct to Consumer and International. The Company primarily sells bras, panties, shapewear, hosiery, men’s underwear, children’s underwear, socks, T-shirts and other activewear. As of December 31, 2016, the Company distributed its products from 44 distribution centers. As of December 31, 2016, these facilities included 15 facilities located in the United States and 29 facilities located outside the United States in regions primarily where the Company sold its products. As of December 31, 2016, the Company internally managed and operated 32 of these facilities, and the Company used third-party logistics providers that operated the other 12 facilities on its behalf.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HBI – January 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 $4,801,356,381 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.84 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 128.49% Pass
6. Moderate PEmg Ratio PEmg < 20 12.85 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.57 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 1.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.26 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 $1.04
MG Growth Estimate 5.62%
MG Value $20.45
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $15.02
MG Value based on 0% Growth $8.81
Market Implied Growth Rate 2.17%
Current Price $13.31
% of Intrinsic Value 65.10%

Hanesbrands Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.75 in 2014 to an estimated $1.04 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.17% 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 Hanesbrands Inc. revealed the company was trading above its Graham Number of $8.05. The company pays a dividend of $0.6 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.85, which was below the industry average of 32.21, 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 $-7.81.

Hanesbrands Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.81
Graham Number $8.05
PEmg 12.85
Current Ratio 1.84
PB Ratio 5.57
Current Dividend $0.60
Dividend Yield 4.51%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $3,737,205,000
Total Current Liabilities $2,027,128,000
Long-Term Debt $3,863,580,000
Total Assets $7,455,506,000
Intangible Assets $2,838,672,000
Total Liabilities $6,584,918,000
Shares Outstanding (Diluted Average) 364,638,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.51
Dec2017 $0.17
Dec2016 $1.40
Dec2015 $1.06
Dec2014 $0.99
Dec2013 $0.81
Dec2012 $0.41
Dec2011 $0.67
Dec2010 $0.54
Dec2009 $0.14
Dec2008 $0.34
Dec2007 $0.33
Jun2006 $0.84
Jun2005 $0.57
Jun2004 $1.17
Jun2003 $1.11
Jun2002 $0.88c

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.04
Dec2017 $0.83
Dec2016 $1.08
Dec2015 $0.88
Dec2014 $0.75
Dec2013 $0.59
Dec2012 $0.46
Dec2011 $0.46
Dec2010 $0.38
Dec2009 $0.35
Dec2008 $0.52
Dec2007 $0.68
Jun2006 $0.87
Jun2005 $0.84
Jun2004 $0.86
Jun2003 $0.61
Jun2002 $0.29

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – September 2018
10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
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5 Great Stocks This Week – 3/12/18
Hanesbrands Inc Valuation – March 2018 $HBI

Other ModernGraham posts about related companies

L Brands Inc Valuation – January 2019 $LB
Nike Inc Valuation – November 2018 $NKE
Deckers Outdoor Corp Valuation – May 2018 $DECK
Ralph Lauren Corp Valuation – May 2018 $RL
Abercrombie & Fitch Co Valuation – May 2018 $ANF
Steven Madden Ltd Valuation – May 2018 $SHOO
Stage Stores Inc Valuation – May 2018 $SSI
American Eagle Outfitters Inc Valuation – May 2018 $AEO
Crocs Inc Valuation – May 2018 $CROX
Chico’s FAS Inc Valuation – May 2018 $CHS

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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