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Income expert Carla Pasternak's debut issue of High-Yield
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investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
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| Value
Investing Opportunity: Timberland (TBL) |
Published: June 23, 2006
With shares of Timberland (TBL)
having tumbled from a high of $41 down to recent lows in the mid-$20s,
the stock could make an excellent value play at current levels. Here's a
closer look at why we believe Timberland is likely to rebound off its
recent lows . . .
Business Overview:
Timberland is a leading provider of specialty outdoor footwear for men,
women and children. The company is perhaps best known for its trademark
rugged outdoor hiking boots, though it also markets a complete line of
casual footwear, including boat shoes, loafers, oxfords, and sandals.
Footwear accounts for roughly three-fourths of Timberland's total
revenues. The remainder comes from the sale of outdoor apparel and
related accessories.
Competitive Advantages:
One of the company's most powerful competitive advantages lies in the
Timberland brand itself. Similar to Nike in the athletic shoe category,
Timberland has built a reputation for providing high-quality outdoor
merchandise that appeals to performance-minded consumers. As a result,
the firm has captured around one-third of the outdoor footwear market
and is typically able to charge premium prices for its products.
Growth Drivers: Like many, Timberland has set up shop in a
number of fast-growing foreign markets to spur growth. Six years ago,
international sales represented just one-quarter of the firm's total
revenues. Today, that percentage has jumped to around 55% and is still
climbing. Going forward, we expect Timberland's popular brand and
expanding retail footprint to continue generating strong results
overseas.
Valuation and Outlook: As the table below shows, Timberland
has delivered steady growth over the past several years.
| |
2002 |
2003 |
2004 |
2005 |
| Revenues |
$1.2B |
$1.3B |
$1.5B |
$1.6B |
| Operating
Margins |
11.7% |
13.7% |
15.6% |
15.7% |
| Operating
Cash Flow |
$137.9M |
$199.0M |
$184.7M |
$182.3M |
| Net
Income |
$95.1M |
$117.9M |
$152.7M |
$164.6M |
| EPS |
$1.18 |
$1.62 |
$2.14 |
$2.43 |
Meanwhile, the shares have
barely budged, inching up just +2.8% annually over the last three years
-- lagging behind their peer group by more than 13%.
TBL has been particularly weak over the past two months, with the shares
plunging around -20% after the company reported soft first-quarter
results in early May. By all accounts, it was a difficult quarter:
revenues were a little better than flat, same-store sales dropped almost
-11%, gross margins contracted sharply, and earnings tumbled -22% to
$0.45 per share.
 However,
while knee-jerk investors dumped their shares on the news, we believe
that the recent results are more of a temporary speed bump than a sign
of a protracted slowdown. Though the near-term forecast remains
challenging (particularly in Europe), the company still has very
attractive long-term growth prospects. Driven by continued overseas
success, Timberland is expected to generate bottom-line growth of +12%
annually over the next five years.
Considering that fashion trends can be fickle and consumer tastes can
change rapidly, it is important to be flexible in the product
development department. On that front, Timberland has plenty of
financial strength ($125 million in cash and zero debt) to ensure that
more capital is pumped into designing new products that resonate closely
with customers. Not only should this lead to higher demand, but it will
also further differentiate Timberland's unique products from the
competition.
Based on conservative cash flow growth estimates of +9% over the next
five years, using discounted cash flow analysis we have pegged TBL's
fair value at approximately $43 per share -- or roughly 35% above the
stock's recent closing price. For a financially healthy company with a
strong brand name, double-digit profit margins, and superior returns on
equity, that margin of safety looks compelling.
Note:
The above article was merely a small excerpt from
a recent issue of our premium value investing newsletter -- Half-Priced
Stocks. The mission of Half-Priced Stocks is to
help our readers identify securities that are trading at a steep
discount to their intrinsic net worth. In some cases this
discount can reach up to 50% or more, giving savvy value
investors the chance to purchase quality stocks for just pennies
on the dollar. To learn more about our Half-Priced Stocks
service, please visit the following link:
https://www.StreetAuthority.com/subscribe-hps.asp |
Thanks for reading!
|
Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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| To receive
in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
Nathan Slaughter's premium value investing newsletter --
Half-Priced
Stocks |
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