Last week, Qatar's sovereign wealth fund - Qatar Investment Authority - bought over $136 million in Tiffany's stock (TIF). The investment fund disclosed early last year that it was a 5% owner, and since that time has raised its stake towards 9%. This gives us a good opportunity to evaluate whether they are getting into the stock at a good value.
Tiffany, as you probably know, is the maker and seller of fine jewelry around the world. In one sense, it competes against Zales (ZLC), Luxottica (LUX), Signet Jewelers (SIG), and Blue Nile (NILE), but in another sense, none of these two competitors matches the reputation of Tiffany.
The largest competitor is Luxottica. Tiffany has $3.75B in revenue and $855.26M EBITDA, while Luxottica has $9.17B in revenue and $1.73B in EBITDA. That being said, of course size doesn't necessarily equal quality and has no bearing on value. Despite Luxottica's size advantage, Tiffany leads the industry in terms of operating and profit margin. Let's look at some metrics.
Tiffany has a P/E ratio of 21.50, which is higher than the S&P average, but is lower than its industry average of 28. Because of Tiffany consumer jewelry, it seems reasonable to use Current Ratio rather than Quick Ratio (the Quick Ratio leaves out inventory), in terms of determining the company's liquidity. Using that metric, Tiffany is also an industry leader, with a ratio almost four times as high as Luxottica.
The company has a long-term debt-to-equity ratio of .32, indicating a reasonable debt burden going forward.
The average analyst estimate for 2014 earnings is $3.50 EPS. Using a P/E ratio of 20, you get a per share price of $70. The current price is $69.58. If you use the analyst high estimate of $3.96 EPS, you get a per share price of $79.20. Even using the high estimate, the company isn't necessarily undervalued.
The company does provide a 1.82% dividend, in a world starving for yield. Additionally, it has a five-year dividend growth rate of 19.2%, so you are likely to see its dividend increase going forward.
While the company is an industry leader, with a great brand that provides some "business moat," the downside would be that this company seems fully valued.
Since January 1st, Conaccord Genuity reiterated its buy rating, then downgraded to hold, and then downgraded to sell. In that time, HSBC has upgraded the stock to a Buy.
This chart is showing a bullish trend. The price is above the moving averages, and above the "cloud," which are bullish using Ichimoku. However, the distance between the price and the Tenkan (blue line) implies that you could see a pull-back to $67.50 and still be in a bullish trend. Larger support resides near $66.90 and $66.20.
Despite the strong buying from Qatar, I don't think this company is a screaming buy. It is a strong company with a good moat, but I think you could find a better time to get into it.
Disclaimer: We do not know your personal financial situation, so the information contained in this article represents my opinion, and should not be construed as personalized investment advice. Past performance is no guarantee of future results. Do your own research on individual issues.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.