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Saturday, 25 November 2006
Wolverine Worldwide (WWW) "Weekend Trading Portfolio Analysis"

 

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

One of the things I have been trying hard to do on this blog, is to keep you informed of my actual holdings and the transactions that I make with the stocks that I really own.  I do this in addition to the running commentary on what I call my "vocabulary" of investing....the discussion of the many stocks that I consider "investable".  My updating you as frequently as possible, I try very hard to maintain as close to absolute 'transparency' as I can.  This allows you to see what I am doing with my own stocks as well as allows you to hear about other stocks that I find attractive but have not owned...but might own in the future!

A couple of years ago, I started reviewing my "trading portfolio" stocks on a regular basis here on the blog.  I stopped updating the link to my trading portfolio some time back as all of the housework started catching up with me and I found it absolutely unrealistic to do all of this manually by myself.  But I continue to run through my holdings, trying to review a stock I actually own,  about twice/month.  Two weeks ago I reviewed my Ventana holding on Stock Picks.  This evening, I would like to take another look at Wolverine Worldwide (WWW), a relatively recent acquisition for me. 

I first reviewed Wolverine Worldwide (WWW) on Stock Picks Bob's Advice on  October 6, 2004, when it was trading at $28.90.  WWW had a 3:2 stock split on February 2, 2005, making my effective stock pick price actually $19.27.  WWW closed at $28.40 on November 24, 2006, for a gain of $9.13 or 47.4% since it was picked on the blog.

I purchased 240 shares of WWW in my actual trading portfolio on April 19, 2006, with a cost basis of $23.55/share.  With Friday's closing price of $28.40, this represents an unrealized gain of $4.85 or 20.6% since purchase.  I have not sold any of my original purchase.  According to my plan of selling 1/6th of my shares at a 30% gain, if the stock reaces 1.30 x $23.55 = $30.62, then I would plan on selling 40 shares and this would give me the "permission" to add a new position to my trading portfolio.  On the other hand, since I have not sold any shares, if the stock would fall to an (8)% loss, or .92 x $23.55 = $21.67, then I would plan on selling all of my holding at that time.

Let's take another look at this stock and see if it still deserves a place on this blog!

1. What does this company do?

According to the Yahoo "Profile" on WWW, the company

"... engages in the design, manufacture, and marketing of a line of casual shoes, rugged outdoor and work footwear, and constructed slippers and moccasins primarily in the United States. It offers work, outdoor, uniform, and lifestyle boots and shoes; performance and lifestyle footwear; and comfortable casual, dress footwear, and slippers through its Wolverine Footwear Group, Outdoor Group, Heritage Brands Group, and Hush Puppies Company. The company provides its products under various brand names, including Bates, CAT, Harley-Davidson, Hush Puppies, HyTest, Merrell, Sebago, Stanley, and Wolverine."

2. How did Wolverine do in the latest reported quarter?

On October 4, 2006, Wolverine announced 3rd quarter 2006 results.  Revenue for the quarter came in at $298.9 million, a 7.1% increase over the $279.1 million reported in the same quarter the prior year.  Earnings per share were up 9.5% to $.46/share, up from $.42/share the prior year. The company also raised guidance for 2006 to $1.41 to $1.44/share, from prior guidance of $1.38 to $1.42.  WWW left revenue estimates for the year unchanged.  This result exceeded expectations of $.44/share, although revenue was in line with the estimated $299 million. 

3. How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on Wolverine Worldwide (WWW), we can see a pretty picture of steady revenue growth from $720 million in 2001 to $1.06 billion in 2005 and $1.1 billion in the trailing twelve months (TTM).

Earnings per share have also steadily increased from $.71/share in 2001 to $1.27 in 2005 and $1.37/share in the TTM.  The company also pays a dividend and has been steadily increasing the dividend from $.11/share in 2001 to $.26/share in 2005 and $.28/share in the TTM.

Also nice, the company has kept its shares stable with 61 million outstanding in 2001, 56 million in 2005, and 60 million in the TTM.

Free cash flow has been nicely positive with $86 million in 2003, $100 million in 2005 and $97 million in the TTM.

The balance sheet, as presented by Morningstar.com, appears gorgeous to me!  The company is reported to have $81 million in cash and $377.5 million in other current assets giving a total of $458.5 million in total current assets.  When compared to the $132.8 million in current liabilities this yields a current ratio of 3.45...with a ratio of 1.5 or higher being considered strong.  The company is reported to have a nominal $60.1 million in long-term liabilities, easily covered by the current assets.  The balance sheet looks quite strong to me.

4. What about valuation?

Reviewing the Yahoo "Key Statistics" on Wolverine, we see that this is a mid-cap stock with a market cap of $1.58 billion.  The trailing p/e is a moderate 20.11, with a forward p/e (fye 31-Dec-07) of 17.53.  The PEG is a reasonable 1.42. (Generally PEG ratios between 1.0 and 1.5 are acceptable to me).  

Reviewing Fidelity.com eresearch for some more valuation numbers on this stock, WWW is in the "Textile-Apparel Footwear/ Accessories" industrial group.   Compared to the other stocks in the group, WWW is reasonably priced with a Price/Sales ratio of 1.4.  Leading this group is another favorite (and holding) of mine, Coach (COH) with a Price/Sales ratio of 7.2.  They are followed by VOLCOM (VLCM) at 4.1, Nike (NKE) at 1.6, then Wolverine (WWW) at 1.4, and Timberland (TBL) at 1.3.

Insofar as one measure of profitability, Return on Equity (ROE) is concerned,  Coach is actually the most profitable with a 40.1% ROE, followed by VOLCOM at 25.1%, Timberland at 21.8%, Nike at 21.5%, and Wolverine at the bottom of this group with a ROE of 17%.

Returning to Yahoo, we find that there are 55.66 million shares outstanding with 53.84 million that float.  Currently, there are 2.38 million shares out short (10/10/06) representing 4.4% of the float or 4.5 trading days of volume. Using my "3 day rule" on short interest, this is somewhat significant and may be supporting the stock price in the event of any 'good' news.  As already noted the company pays a dividend with a forward rate of $.30/share and an anticipated forward yield of 1.00%.  The last stock split, as I noted above, was a 3:2 split on February 2, 2005.

5. What does the chart look like?

Reviewing the "Point and Figure" chart on Wolverine Worldwide (WWW) from StockCharts.com, we can see that the stock was grading sideways from 2001 into 2002, and broke out at around $10.50 in March, 2003, and then climbed very strongly to its current level around $28.40.  The chart looks quite strong.  I noted my first stock pick price and my purchase price on the chart below. 


6. Summary: What do I still think about this stock?

Let me try to review some of the things I discussed above. First of all the stock is performing just fine trading within 10% of its all time high.  The latest quarter was steady with growth in both revenue and earnings and found the company beating expectations on earnings and raising earnings guidance.  Both are strong.

Longer-term, the company has been remarkably steady in raising revenue, increasing revenue, and paying an increasing dividend.  All this while maintaining a steady number of outstanding shares and spinning off an adequate amount of free cash flow.  The balance sheet looks superb with assets outweighing liabilities substantially.  Valuation-wise the p/e is moderate with a PEG of about 1.5.  The Price/Sales is quite cheap, although the return on equity (ROE) figure is less impressive.  Finally, there are even a good number of short-sellers (who probably, and rightfully so, believe the chart looks a bit over-extended), however, with any good news, we may see a bit of a squeeze.  In summary, I still like this stock.  Now, of course I am biased as I am an owner of this, and I also remember my first pair of Hush Puppies years and years ago which I was crazy about....those light shoes with the fuzzy leather!

Thanks again for stopping by and visiting!  If you have any comments or questions, please feel free to drop me a line at bobsadviceforstocks@lycos.com and be sure to visit my Stock Picks Podcast website where I discuss many of the stocks and strategies that I write about here on the blog.

Have a Happy Thanksgiving Weekend everyone!

Bob 


Posted by bobsadviceforstocks at 6:33 PM CST | Post Comment | Permalink

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