Shares of Tiffany & Co. (TIF) are trading near the 52-week low, and the current price might be a prime buying opportunity for contrarian investors. The shares of this famous luxury retailer traded around $72 in March, but it plunged to about $53 after the company reported disappointing earnings and lowered guidance. It seems that European consumers are not spending as much as before, due to the ongoing debt crisis. The company has stores in various European countries which gives it direct exposure to Europe. For example, it has 5 stores in France (4 in Paris and 1 in Nice). Also, the stronger dollar is making it more expensive for tourists from Europe and other countries to buy when they shop at Tiffany stores in the United States.
However, the stock looks appealing now. Here are 4 reasons why investors should consider buying the stock:
1. Investors should be focusing on the fact that the slower than hoped for sales are a result of the global economy and European debt crisis. These issues are not company-specific problems and that is what makes the current situation a buying opportunity. If the company was seeing slower sales in a booming economy, or introducing poorly designed merchandise, that would be a company-specific issue and a lower price would not necessarily be a buying opportunity.
2. Tiffany & Co. pays a solid yield of 2.4%, but what is more impressive is the recent history of dividend growth. For example, the company paid 36 cents in dividends in 2006, but thanks to steady increases, it now pays $1.28 in dividends annually. This means that the dividend has more than tripled in just about 6 years. It also shows the company is committed to a strong dividend policy, and that is likely to continue. Since earnings estimates are about three times larger than the dividend, the payout ratio is low and the company has plenty of room to raise the dividend in the future.
3. Tiffany & Co., has growth potential. The European debt crisis won't last forever, and when the global economy is stronger, and when consumers are more confident, this company is likely to see much stronger sales. Tiffany has one of the most recognizable brands in the world, and the stock deserve to trade at a premium valuation. The company plans to open 24 new stores around the globe this year, and it has additional potential to expand online sales.
4. Tiffany & Co., is undervalued considering that this premium luxury retailer trades for just about 14 times earnings. This storied company was started in 1837, when Charles Lewis Tiffany opened the first store in Manhattan. The Tiffany name is famous, and major expansion of the brand is possible, especially in emerging market countries. When you compare the valuations of other luxury retailers, the current value of Tiffany shares is compelling. For example, shares of Coach, Inc. (COH), trade for about $62, (or around 17.5 times earnings) and the earnings estimates are just $3.53 versus Tiffany earnings estimates of $3.72 per share (or 14 times earnings). Another recently public luxury retailer- Michael Kors Holdings (KORS) trades for about 36 times earnings, see below for more details and comparisons.
Key Data Points For Tiffany & Co. From Yahoo Finance:
- Current price: $53.70
- 52-Week Range: $52.74 to $84.49
- Dividend: $1.28 which yields 2.4%
- 2012 Earnings Estimate: $3.72 per share
- 2013 Earnings Estimate: $4.27 per share
- P/E Ratio: about 14 times earnings
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.