These Companies May Benefit From the Super Bowl, But Will They Benefit Your Portfolio?

Tuesday, January 31st, 2017

Best Buy Co. Inc. (BBY) - BUY
New 4k TV’s are a great way to experience the big game. Best Buy has recently seen a resurgence behind many of its restructuring efforts and has been excited by the performance of its TV sales. They believe they are a market leader in TV and home theatre, as they have seen growth in this category. Online sales have also been a driver as the company has now seen its 3rd straight quarter of 24% online revenue growth. The balance sheet for Best Buy is very strong as the current ratio is 1.35 and Debt/Equity is just 32.1%. BBY has a current price of $43.65 and a 52-week range of $26.10-$49.40. Looking forward to January 2018 the company is estimated to make $3.48 on a GAAP basis. This gives us a forward P/E of 12.5 and a target sell price of $57.42.

General Motors (GM) - BUY
GM owned Buick will be running an ad during the super bowl, but is the company worth buying? Auto sales have been holding extremely strong at near record levels and General Motors has been generating a lot of cash. The company expects auto sales to be strong in 2017 once again as it recently raised guidance for 2017 EPS and announced approval of $5 billion share repurchase program. Sales have increased 6.4% over the last 12 months and EPS has risen 219.7% during the same time frame. Price/Cash Flow of 2.3 is below the industry average of 4.4 and shows the tremendous value investors receive for each dollar of cash generated by GM. General Motors has a current price of $36.53 and a 52-week range of $26.69-$38.38. Looking forward to December 2017 estimated EPS of $5.63 gives us a forward P/E of 6.49 and a target sell price of $92.90. On top of the low valuations, the company has a dividend yield of 4.16% and it only uses 16.7% of earnings to pay that out.

Dick’s Sporting Goods (DKS) - HOLD
Those last-minute jersey purchases for the big game could be found at Dick’s Sporting Goods. The company has benefited from the closing of Sports Authority and has seen sales increase 7% over the last 12 months. The balance sheet is a big positive as a current ratio of 1.57 provides liquidity for the company and Debt/Equity of 14.25% shows the leverage control the company has maintained. Dick’s has a current price of $50.49 and a 52-week range of $36.06-$62.88. Looking forward to January 2018 estimated EPS of $3.76 gives us a forward P/E of 13.43 and a target sell price of $62.04.

Corning Inc. (GLW) - HOLD
This glass maker produces the glass for many of the TV displays we have come to enjoy. One of its major customers is the TV maker, Sharp Electronics. The valuation ratios for this company are a major positive. The current P/E of 13.05 is well below the industry average of 24.38; Price/Sales of 2.58 is below the industry average of 2.85; Price/Tangible Book of 1.54 compares favorably to the industry average as it is not material; and Price/Cash Flow of 6.86 is well below the industry average of 18.09. While sales have fallen by 1.50% over the last 12 months, EPS has increased by 26.9% during the same time frame. While the valuation measures look strong for the trailing twelve months, looking forward to December 2018 estimated EPS of $1.67 produces a forward multiple of 15.83. This is close to the 40 year average of 16.5 and would warrant a hold position in our portfolio.

Nike (NKE) - SELL
Nike supplies the NFL with uniforms and sportswear for many loyal fans. The company maintains an impressive balance sheet as Total Debt/Equity is just 28.70%. A current ratio of 3.06 shows the company’s current short term liquidity is very strong. It is even more impressive when looking at the quick ratio of 2.10 as this measure excludes inventory from the calculation. With a current profit margin of 11.6%, Nike exceeds the industry average of 9.66%. This strength helps produce a Return of Equity of 30.22 which tops the industry average of 25.50. NKE has a current price of $52.44 and a 52-week range of $49.01-$65.44. Looking forward to May 2018 estimated GAAP EPS of $2.63 gives us a target sell price of $43.40. While Nike has a great product and is very well run, you are currently paying too much for the expected earnings of this company.

Tiffany & Co. (TIF) - SELL
Tiffany’s has been producing the championship/Lombardi Trophy to the NFL champion since 1967 in Super Bowl 1 when the Green Bay Packers were victorious. The trophy is done from scratch every year and costs $50,000. Over the last 12 months sales have declined 4.56% and EPS has fallen by 6.81% during the same time frame. Tiffany’s pays a nice dividend of 2.2% and it uses 47.4% of earnings to pay the dividend out. Estimated January 2018 EPS of $3.95 produces a forward P/E multiple of 19.81 and a target sell price of $65.18. This is well below the current price of $78.25.

Domino’s Pizza (DPZ) - SELL
While sales have increased 13.0% over the last 12 months and EPS has risen 27.9% during the same time frame, valuations are stretched. A current P/E of 41.02 is above the industry average of 25.1; Price/Sales of 3.32 is above the industry average of 2.28; and Price/Cash Flow of 33.13 is above the industry average of 14.76. There is currently no Price/Book Value as the company has equity of ($1.936) Billion. Current total debt of $2.23 billion is also worrisome. Based on estimated December 2017 EPS of $5.13 the company has a forward P/E of 33.86.

Molson Coors Brewing Company (TAP) - SELL
The company has a lot of liquidity on the balance sheet as the current ratio is 6.82. Total Debt/Equity is somewhat high at 99.68%. Sales have decreased 7.0% over the last 12 months while EPS has risen by 20.8% during the same time frame. The company has a strong profit margin of 16.8% which is above the industry average of 14.2%. The problem comes down to the valuations as the current P/E is 36.41 which is above the industry average of 33.11; Price/Cash Flow of 24.59 is above the industry average of 21.35; and the forward P/E is 19.58.

In closing, we leave you with a quote from one of the all-time great coaches, Vince Lombardi, “Football is a great deal like life in that it teaches that work, sacrifice, perseverance, competitive drive, selflessness and respect for authority is the price that each and every one of us must pay to achieve any goal that is worthwhile.” 

Enjoy Super Bowl Sunday!!
Picks for Super Bowl:
Chase: PATRIOTS
Brent: FALCONS
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Do you have a question or a company you'd like us  to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com.

Brent Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8am and Sunday at 5pm on KFMB AM760. 

Chase is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8am and Sunday at 5pm on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.

 

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