Tiffany's Potential Reward Now Shinier Than Its Risk
Investors who are looking for a beaten down stock with the potential for a turnaround should consider Tiffany (TIF) - Get Report , which reports fiscal third-quarter earnings before the opening bell Tuesday. TIF stock -- down some 30% on the year to date and 28% in the past 12 months -- may not scream bargain today at 22 times earnings. But the shares are 17% lower today than where they were six months ago when we advised to stay away.
The New York-based high-end jeweler has seen its earnings per share estimates for the just-ended quarter decline about 11% in the past three months (from 84 cents to 75 cents a share). This puts the company in better position to beat those estimates. In addition, Tiffany can issue a 2016 and/or 2017 business outlook that is more favorable for the stock.
For the quarter that ended October, analysts on average expect Tiffany to earn 75 cents a share on revenue of $973.68 million, compared to the year-ago quarter when the company earned 76 cents a share on revenue of $960 million. For the full year, ending in January 2016, earnings are projected to decline 4% year-over-year to $4.04 a share, while revenue of $4.28 billion would yield a year-over-year increase of about 1%.
That Tiffany's full-year earnings per share are projected to decline 4% year-over-year on just 1% revenue growth is nothing to write home about. While this scenario was also the premise for our bearish outlook back in May, Tiffany's stock price then was also much higher -- hence the negative risk-vs.-reward profile. That's no longer the case.
Today, the combination of low expectations and possible upside makes TIF shares, which have a consensus buy rating, more attractive. Plus, unlike six months ago, there's now an implied 30% gain on the stock, based on its average analyst 12-month price target of $98. This new price target is about $23 above where the shares trade today at around $75. Add in the company's 40-cent quarterly dividend that yields 2.13% annually, that's strong value.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.