Is it Time to Fall in Love with these Stocks?
Tuesday, February 14th, 2016
Michael Kors (KORS) - BUY
Michael Kors has many great products popular with women including handbags, watches, and fragrances. The company has also been expanding into men’s fashion, so this company could be a Valentine’s Day winner for both genders. In early 2014, Kors was trading above $100/share. Since then the company has fallen out of favor with many investors and has a current price of $37.60. Sales have increased 0.72% over the last 12 months while EPS has risen 0.84% during the same time frame. The balance sheet for the company is strong as the current ratio is 2.04 and Debt/Equity is just 7.98%. All this debt will come due within the next 12 months as the company’s long-term Debt/Equity is 0%. Kors profit margin of 16.3% exceeds the industry average of 6.0%. This has helped produce a ROE of 39.5%, well above the industry average of 13.9%. Looking to March 2018, estimated GAAP EPS of $4.11 produces a low forward multiple of 9.15. The low valuations and strong balance sheet are areas to love about this company.
Build-A-Bear Workshop (BBW) - BUY
This company produces personalized bears for that special someone. BBW has great valuations ratios as the Price/Sales is 0.51 which is below the industry average of 0.75 and Price/Cash Flow is 5.12, more than half the industry average of 10.57. BBW has good liquidity as the current ratio is 1.39 and there is no debt on the balance sheet. Sales have fallen 5.1% over the last twelve months, but EPS has increased 17.8% during the same time frame. Looking forward to December 2017, estimated EPS of $1.03 would give us a target sell price of $17.00.
Hershey (HSY) - SELL
Last year Hershey rejected an offer of $107/share from Mondelez. Once the talks officially ended between the two companies HSY fell 11%. HSY still looks expensive as the current P/E is 41.33 which is well above the industry average of 26.31. There is currently no Price/Tangible Book Value as the company has over $1 billion worth of goodwill and intangibles on the balance sheet. Total Debt/Equity of 360.06% is a negative for the company. HSY pays a nice dividend of 2.3%, but based on December 2018 estimated EPS of $5.10, we get a target sell price of $84.15. This is a not so sweet result as the current price is $108.21.
1-800-Flowers (FLWS) - SELL
Ordering Flowers for your significant other may be an easy solution for Valentine’s Day, and 1-800-Flowers could be the company to help you out. Over the last 12 months’ sales for FLWS have increased 2.1% and EPS has fallen 28%. Since sales increased, it would be important to find which expenses led to a decline in EPS for this company. The company drastically improved its balance sheet at the end of calendar 2016, and paid off more than $140 million in short term debt. This helped produce a strong current ratio of 1.56 and a low Debt/Equity of 38.7%. Looking out to June 2018 estimates GAAP EPS of $0.52 gives us a target sell price of $8.58. Although FLWS improved its balance sheet, the high forward multiple would be reason enough for us not to place a buy order for this company.
Bloomin Brands (BLMN) - SELL
Thinking about going out for a Valentine’s Day dinner? This company operates well known restaurant names such as Outback Steakhouse, Carrabbas Italian Grill, Bonefish Grill, and one of our favorite restaurants, Flemings. Price/Sales of 0.45 is below the industry average of 2.51 and Price/Cash Flow of 7.34 is below the industry average of 23.91. Looking forward to December 2017, estimated EPS of $1.41 gives us a forward multiple of 12.09. While the valuations look good for this company, the problem lies in the balance sheet. BLMN has poor liquidity the current ratio of only 0.37 is concerning and Debt/Equity is also very high at 540.5%. The low valuations look enticing, but the weak balance sheet could be problematic for this company down the road.
Tiffany & Co. (TIF) - SELL
One of the most desired Valentine’s Day gifts is jewelry, and many women love the name Tiffany’s when it comes to jewelry. Over the last 12 months’ sales have declined 4.56% and EPS has fallen by 6.81% during the same time frame. The company pointed to the election madness as a reason for the sales slowdown. This was attributed to a top producing store located next to Trump Tower. Tiffany’s does pay a nice dividend of 2.2% and it uses 47.4% of earnings to pay the dividend out. Estimated January 2018 EPS of $3.92 produces a forward P/E multiple of 20.82 and a target sell price of $64.68. The company’s shiny products may be tempting, but based on the current price of $81.63 this company would not be a buy.
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.