First Cut Stock Study Report
Company Name: Vera Bradley, Inc.
Ticker:
Date of Study:
2/13/2013 (price date 2/12/2013)
Price: $ 26.01
Your Name:
Suzi Artzberger
Email address:
suzia@betterinvesting.org
City:
Madison Heights
Chapter Name (if applicable):
State:
VRA
MI
BetterInvesting Home Office
Discuss why you consider this to be a high quality, growth company that
should be investigated further. Please include comments on historical sales
and EPS growth, pre-tax profit margin, return on equity, and debt.
Vera Bradley is a small sized company and while they have been in existence
since 1982 they only been trading since October of 2010. There are 4 years of
data available to us as investors.
They have experienced robust, consistent revenue growth of 24.8% for the past
4 years and quarter over quarter growth of 14.2%
This company compares favorably with my chosen peers Coach (COH), Michael
Kors (KORS), Fossil (FOSL),
Vera Bradley earnings have grown 47.2% on an annualized basis over the last 3
years, 14.4% over the last 2 years, 37.5% quarter over quarter and again
compares favorably with peers.
Sales, earnings and price for the past 2 years seem to track in an increasing,
parallel fashion.
Vera Bradley is showing increasing pre-tax profit margins with a four year
average of 15% and a last year value of 20.6% and compares favorably with its
peers. Coach (COH) traditionally has much larger profit margins with a five year
average of 34.1% while Michael Kors (KORS) and Fossil (FOSL) have PTP
margins more in line with Vera Bradley’s.
Vera Bradley’s last year’s return on equity is 46.7% down from 78.7% and
compares favorably with its peers.
Vera Bradley has 16.9% debt to capital and is the highest of its peers but
appears to be declining.
This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors
should always conduct their own analysis before making an investment decision.
Briefly describe how the company makes money:
(From BI Stock Data Service)
Description: Vera Bradley, Inc. is a designer, producer, marketer and retailer of
stylish and highly-functional accessories for women. Its products include a wide
offering of handbags, accessories and travel and leisure items.
Sector: Consumer Cyclical
Industry: Footwear & Accessories
(From company’s annual report)
We generate net revenues by selling products through two reportable segments:
Direct and Indirect. As of January 28, 2012, our Direct segment consisted of sales of
Vera Bradley products through our 48 full-price stores, our eight outlet stores in the
United States, seven pop-up stores in Japan, our websites, verabradley.com and
verabradley.co.jp, and our annual outlet sale in Fort Wayne, Indiana. As of January
28, 2012, our Indirect segment consisted of sales of Vera Bradley products to
approximately 3,300 specialty retailers, substantially all of which are located in the
United States, as well as select national retailers and third party e-commerce sites.
Projected growth rate for sales: 11.5%
Why did you select this rate? Discuss from where future growth will come.
I chose a conservative rate as a blend between same store sales growth, indirect
sales growth and the higher growth rates coming from the new store openings.
Per the Vera Bradley 10-k they see the following as key growth drivers:
Grow in Underpenetrated Markets – grow in underpenetrated US markets of the
Midwest and Southwest and expand internationally (they entered Japan in 2012).
Expand Our U.S. Store Base – They currently have 48 retail stores and they plan
to open 14-20 new stores annually during each of the next five fiscal years.
Drive Comparable-Store Sales and Our E-Commerce Business – grow
comparable-store sales growth by focusing on store-level merchandising programs
and enhancing in-store customer service and selling capabilities. Grow the ecommerce (online sales) business through focused marketing efforts, online
merchandising initiatives, and social networking sites such as Facebook and Twitter.
Expand Our Product Offerings – expand their product offerings to include new line
extensions, such as focused gift and special occasion offerings, and brand
extensions, such as our paper and stationery collection.
Vera Bradley 10-K filing is here:
http://www.sec.gov/Archives/edgar/data/1495320/000119312512134680/d281578d1
0k.htm
This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors
should always conduct their own analysis before making an investment decision.
As of the end of the last fiscal year, the direct segment accounted for 48.9% of sales
and the indirect segment accounted for 51.1% of sales.
At that time, the company provided long-term guidance of mid-to-high single digits
for the Indirect segment and provided guidance for the next fiscal year for mid-tohigh single digits for comp-store sales.
The company has since lowered guidance on same store sales growth and raised
expectations for their e-commerce channel.
As recently as January, the company was guided slightly higher and indicated that
the current FY sales would be up approximately 15% over the last FY sales.
A survey of analyst estimates reveals the following:
Source
Revenue Growth
Morningstar
14% (next 5 years)
Analyst
Value Line
Not covered
Analyst
14.2% (mean-2YR)
Thomson
Reuters
Consensus
Morningstar
13.4 (mean-2YR)
Consensus
Long Term Earnings Growth
Not covered
18.3% (mean earnings)
18.0% (mean earnings)
Projected growth rate for earnings per share: 9.9%
Why did you select this rate?
My earnings per share growth rate is based primarily on the Preferred Procedure
calculation. I adjusted the %pre-tax profit margin to 19.0% to better reflect their
more recent margins rather than the 4 year average of 15%. This results in a
9.9% projected growth rate for EPS.
Projected High P/E: 18.0
Why did you select this value?
Given that the company has only been trading since 2010, there is not a wealth
of historical PE data to analyze. The high PE for the last two years was 32.8 and
36.6 respectively. I chose to stay with a conservative value compared to history.
I noted that VRA’s competitors high PE’s have often been between 16 and 22.
The Morningstar analyst, Peter Walstrom, indicates his valuation notes that the
fair value estimate implies that the company may trade at 18.5 times earnings.
This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors
should always conduct their own analysis before making an investment decision.
Projected Low P/E: 13.0
Why did you select this value?
Given that the company has only been trading since 2010, there is not a wealth
of historical PE data to analyze. The low PE for the last two years was 17.6 and
17.4 respectively. I noted that VRA’s competitors low PE’s are quite a bit lower –
COH= 11.56 for last FY and FOSL=14.3 for last FY.
I chose to stay with a conservative value compared to history.
Projected Low Price: $20.54
Why did you select this value?
The low PE value of 13 multiplied by the last 4 quarter EPS of 1.58 provides a
low stock price potential of 20.54. This stock seems to have quite a bit of
volatility. The 52 week low is 18.91 and 20% of the current price of 26.01 is
20.81.
At the current price and 25/50/25% zoning, the stock is a (check one):
Buy
or
Hold or
Sell
At the current price, the upside-downside ratio is: 3.6 to 1
Projected compounded rate of return:
11.9% using the forecast high PE to calculate the projected high price. Using the
average PE to calculate the projected high price this is reduced to 8.6%. Vera
Bradley does not pay a dividend.
Your final recommendation (check one):
Buy
or
Hold or
Sell
Explain:
The fundamental data for this company looks decent and growth prospects
strong. The company seems committed to improving processes, margins and
exploring growth for its multi-channel sales model.
As always, before I put investment dollars towards buying this stock or choosing
to keep it in my portfolio, I compare it to other stocks in my portfolio and other
worthy stocks using the stock comparison guide.
This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors
should always conduct their own analysis before making an investment decision.
Company Vera Bradley, Inc.
Date 2/12/2013
Prepared by ARTZBERGER
Data taken from BI Stock Data
Industry Footwear & Accessories
Where traded NAS
Capitalization --- Outstanding Amounts
Preferred ($M)
0.0
Common (M Shares)
Stock Selection Guide
Debt ($M)
Reference
% Insiders % Institution
40.5
35.4 % to Tot Cap
17.3
17.3 % Pot Dil
78.4
0.1
Symbol: VRA
1
VISUAL ANALYSIS of Sales, Earnings, and Price
FY2011 QuarterEnding (10/12)
Sales ($M)
Earnings Per Share
Latest Quarter
138.3
0.44
Year Ago Quarter
121.1
0.32
14.19%
37.50%
Percentage Change
(1) Historical Sales Growth
(2) Estimated Future Sales Growth
24.8%
11.50%
(3) Historical Earnings Per Share Growth
14.4%
(4) Estimated Future Earnings Per Share Growth
9.90%
2
EVALUATING Management
2002
Vera Bradley, Inc.
2003
2004
2005
2006
2007
Pre-tax Profit on Sales
(Net Before Taxes/Sales)
2008
2009
2010
2011
10.34%
14.99%
14.12%
20.62%
15.02%
78.72%
46.71%
62.72%
% Earned on Equity (E/S /
Book Value)
3
Last 5 Year Avg.
PRICE-EARNINGS HISTORY as an indicator of the future
This shows how stock prices have fluctuated with earnings and dividends. It is building block for translating earnings into future stock prices.
PRESENT PRICE 26.0
HIGH THIS YEAR 39.48
LOW THIS YEAR 18.91
A
B
Year
C
Price
D
Earnings
High
Low
E
Price Earnings Ratio
Per Share
High A / C
Low B / C
F
G
H
Dividend
% Payout
% High Yield
Per Share
F / C * 100
F / B * 100
1
2007
2
2008
3
2009
0.000
0.00
4
2010
41.01
22.00
1.25
32.81
17.60
0.000
0.00
0.00
5
2011
52.36
24.83
1.43
36.61
17.36
0.000
0.00
0.00
6
TOTAL
46.8
69.4
35.0
0.0
7
AVERAGE
23.4
34.7
17.5
0.0
8
AVERAGE PRICE EARNINGS RATIO 26.1
4
0.00
0.000
0.66
9 CURRENT PRICE EARNINGS RATIO 16.5
EVALUATING RISK and REWARD over the next 5 years
Assuming one recession and one business boom every 5 years, calculations are made of how high and how low the stock might sell. The
upside-downside ratio is the key to evaluating risk and reward.
A HIGH PRICE - NEXT 5 YEARS
Avg. High P/E
18.00
X Estimate High Earnings/Share
2.53
=
Forecasted High Price $
45.54
B LOW PRICE - NEXT 5 YEARS
(a) Avg. Low P/E
13.00
X Estimate Low Earnings/Share
1.58
=
Forecasted Low Price $
20.54
(b) Avg. Low Price of Last 5 Years
(c) Recent Market Low Price
(d) Price Dividend Will Support
Selected Forecasted Low Price
C ZONING using 25%-50%-25%
Forecasted High Price
45.54
23.42
18.91
Present Dividend
High Yield
20.54
Minus Forecasted Low Price
Buy Zone
Hold Zone
Sell Zone
Present Market Price of
0.000
0.00%
=
20.54
26.79
39.29
20.54
to
to
to
26.01
=
25.00
26.01
is in the
Minus Low Price
0.00
Range.
25% of Range
20.54
Zone
Buy
19.53
=
5.47
=
3.57
E PRICE TARGET (Note: This shows the potential market price appreciation over the next five years in simple interest terms.)
High Price
45.54
=
1.75
X 100
=
175.09
- 100 =
75.09
Present Market Price
26.01
5
6.25
26.79
39.29
45.54
D UPSIDE DOWNSIDE RATIO (POTENTIAL GAIN VS. RISK OR LOSS)
High Price
45.54
Minus Present Price
26.01
Present Price
=
To 1
% Appreciation
5-YEAR POTENTIAL
This combines price appreciation with dividend yield to get an estimate of total return. It provides a standard for comparing income and
growth stocks.
A
Present Full Year's Dividend $
0.000
=
Present Price of Stock
26.01
B AVERAGE YIELD - USING FORECAST HIGH P/E
Avg. % Payout
0.00 %
=
=
0.00 %
Forecast High PE
18.00
0.00
C COMPOUND ANNUAL RETURN - USING FORECAST HIGH P/E
Annualized Appreciation
Average Yield
Annualized Rate of Return
11.85 %
0.00 %
11.85 %
=
0.00 %
Present Yield
AVERAGE YIELD - USING FORECAST AVERAGE P/E
Avg. % Payout
0.00 %
=
=
0.00 %
Forecast Average PE
15.50
COMPOUND ANNUAL RETURN - USING FORECAST AVG P/E
Annualized Appreciation
Average Yield
Annualized Rate of Return
8.56 %
0.00 %
8.56 %