Tiffany Has Too Much Upside Potential To Ignore

| About: Tiffany & (TIF)

The second half of 2011 was a fairly tough time for Tiffany & Co. (NYSE:TIF). After passing $80 per share in the summer, the company's stock price ended the year in low $60s despite beating the analyst estimates in every quarter. The plunge in the stock price was mostly tied to the company's conservative estimates regarding 2012. The company's management noticed a slowing economy, particularly in Europe, and warned the company's investors about that. Obviously they wanted investors to be cautious, however investors turned out to be overly-cautious to the point of overselling this company.

The stock price of Tiffany saw some recovery in the first quarter of 2012, but it continued to get sold as the panic overtook investors of this company because the company failed to beat the earnings estimates in the first quarter of the year. As a result, the share price of Tiffany currently sits at $53.70, just 96 cents above its 52-week low and $30 below its 52-week high. The company earned $3.41 per share this year, and it is expected to earn $3.70 next year and $4.20 in 2014. This indicates a growth of 9% next year and 14% the year after. The company's current P/E ratio is 15, whereas its forward P/E ratios are 14.59 and 12.85. Last year, the company earned $2.87 per share, up 35% from $2.12 the year before, and up 64% from 2 years ago. Given the company's strong growth rate, it can easily support a P/E ratio near 20. S&P gives the company a "Strong Buy" rating with a target share price of $70, indicating a potential upside of 30%.

The company's European exposure is much lower than its American and Asian exposure. The company generates only about 15% of its revenue in Europe, whereas the rest of the revenue comes from North and South America as well as Asia. The company continues to open stores in new markets where it has little exposure, such as Russia and the Middle East. This year, the company's goal is to open 24 new stores around the world. I believe that the slowdown in the global economy is temporary, and once it comes to an end, Tiffany will be one of the companies to benefit from it. The company's current revenue of $3.6 billion is more than twice the amount it was in 2003 when it was only $1.7 billion.

In the last 5 years, the company nearly tripled its dividend rate, up from 45 cents per share to $1.28 per share annually. The company's current dividend yield is 2.38%, comparable to Exxon Mobil's (NYSE:XOM) 2.70%. The company's payout ratio comes down to about 35%, which means that the dividend payments are fairly sustainable.

The company will continue to be profitable for many years and it will continue its growth. However it may struggle in the short term due to the slowness of the global economy. When a company suffers due to economical factors rather than its own fault in the short term, this is a buy signal for me, because I am a long term investor, and companies with a good vision and management are more likely to be successful over ones without a good vision and management in the long term.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TIF over the next 72 hours.

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