Earnings Preview: Nordstrom

| About: Nordstrom Inc. (JWN)

Company Profile

"Nordstrom Inc. (NYSE:JWN) is one of the nation's leading fashion specialty retailers, with 230 U.S. stores located in 31 states. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 117 full-line stores, 109 Nordstrom Racks, two Jeffrey boutiques, one treasure&bond store and one clearance store. Nordstrom also serves customers through its online presence and through its catalogs. Additionally, the company operates in the online private sale marketplace through its subsidiary HauteLook."

Nordstrom is due to report earnings May 10th after the bell at 4:45pm. The company will be holding its annual shareholders meeting the day before, May 9th, at 11:00 a.m.

Current Analyst Estimates

The consensus analyst estimate is for Nordstrom to report earnings of $0.75/share, falling mid way between the low end of the range ($0.70) and the high end ($0.79). The mean estimate for revenue comes in at $2.52 billion between estimates for revenues as low as $2.44 billion and as high as $2.63 billion. The estimated earnings number if attained would represent year over year earnings growth of 15.4% while the revenue growth, if coming in at consensus estimates, would represent growth of 13% from the same quarter a year ago. Earnings and revenue estimates are derived from the 21 analysts covering the stock.

Consensus Earnings Estimates Trend

Consensus estimates for earnings have grown from $0.73 to $0.75 over the past 60 days. This revision trend has picked up more recently in the past month with 11 analysts raising their estimates during that time, nine of which have raised them within the last week. There have been no downward revisions for the current quarters earnings over the same time period.

Current Analyst Price Targets

To this point there has only been one significant event related to analysts covering the stock and that is UBS initiating coverage on the stock with a buy rating. Analysts at UBS have set a price target for the stock at $63/share.

Ratio Analysis

To get a sense of the current valuation with respect to its competitors, below is the ratio analysis for Nordstrom versus Macy's (NYSE:M) and Saks' Incorporated (NYSE:SKS) along with the industry and S&P 500 averages.

JWN M SKS Industry S&P 500
Price / Earnings 17.53 13.8 24.88 153.8 15.3
PEG 1.51 1.32 1.6 --- ---
Price / Sales 1.06 0.64 0.56 0.5 1.3
Price / Book 5.86 2.81 1.42 2.2 2.2
Dividend Yield 1.96% 1.99% --- 1.5% 2.1%

Fair Value Analysis

The valuation of discounted cash flows is an effective tool in identifying the intrinsic value for well established companies. The input for the analysis is as follows:

Revenue Growth Rate (Current Year / Ongoing) 11.3% / 6.5%
Cost of Goods Sold (COGS)(% of Revenue) 60.6%
Operating Expenses (% of Revenue) 28.2%
Tax Rate 35.5%
Weighted Average Cost of Capital 10%

Over the previous four years the company had been able to better manage its cost of goods sold, however that trend may be turning so analysis will use only a modest 0.2% decrease in COGS for 2013 and beyond. While operating expenses for the company have been relatively consistent, for the purpose of maintaining a conservative analysis I've used 28.2% for operating expenses as a percentage of revenue, slightly higher from the year prior. Also higher from the year prior is the company's tax rate which I've raised to 35.5% from 34.9%. This change allows for any variability that might occur due to a changing tax code. The result is an estimated fair value of $45.74/share. Currently shares trade for $54.14, an 18.4% premium to the estimated fair value.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.