Tiffany & Co. (TIF) has seen its shares drop 59% this year as sales and profits fell victim to the global economic downturn, but patient investors have plenty to look forward to. Trading at a record low valuation, Barron's Johanna Bennett thinks the jeweler's shares can regain their value in a few years.
Tiffany's stock is trading near a record low at 8.7 times forward earnings. A bleak 2009 with falling profits is already reflected in the stock price, and Tiffany expects profits to start recovering in 2010, or possibly late 2009. In the meantime, the company has scaled back plans for new stores, and plans to cut costs and jobs. The company could also benefit from the recession, gaining market share as small boutiques and family jewelry shops go out of business.
The third-largest player in the $35B U.S. jewelry market, and with 40% of its sales from diamond jewelry, Tiffany has "always leaned towards the high-end of the market which provided good insulation from the twists and turns of the economy," says analyst George Van Horn. At the moment, that insulation is looking a bit thin. Demand for luxury goods has fallen in both the developed and emerging economies, same-store sales were down 7% last quarter and could fall as much as 25%-35% this quarter in the U.S. As such, Tiffany has slashed its profit projection for the year to $2.30-$2.50/share, down from $2.82-$2.92/share.
Still, Van Horn believes that when markets begin to turn around, "one of the first to benefit will be the high end of the industry, which Tiffany dominates." According to Thomson Reuters, Tiffany's FY 2010 profits could climb 20% to $2.68/share, and in the meantime its 3.4% dividend yield beats both the S&P 500 and the 10-year Treasury.
- The shares are attractive right now, but you must be patient," says Larry Coats, CEO of Oak Value Capital Management. "This is a good business with good management and the stock now trades at bargain valuations. That is what people should look for right now.