Thursday, 28 May 2015

Tiffany's positive surprise for the market

I last wrote on Tiffany a couple of months ago (link here) where I concluded:

'Using the company's own guidance of 'minimal growth in net earnings per diluted share' the share trades on just over a x13 forward EV/ebit multiple and offers a c. 3.7% free cash flow yield (of which around half is paid out as a dividend) and with a solid balance sheet (net debt is around x1 ebitda).  

These are not terrible multiples but not hugely compelling if like me you have a starter position already.  Nevertheless I would certainly encourage zero position investors to consider the stock and my trading instinct is not just to hold on but to look to double my position in the US$75-80 range (the lower price equates to around a forward x12 EV/ebit multiple)'.  

Well there clearly has been some progress on Wednesday - a share does not otherwise push up 10% plus as Tiffany's did without some impetus:

So what did the earnings say?  Well it wasn't a formal earnings shredding beat...

'Net sales and earnings declines, albeit smaller than anticipated, reflected the negative effects from the strong U.S. dollar and a difficult year-over-year sales comparison in Japan. Management maintained its earnings guidance for the year ending January 31, 2016, as specified in the Company's news release on March 20th'

...and as noted above and shown below it was not a big sales boost nor change in FX influenced regime:
In fact earnings year-on-year remained down:

In short as the share returns closer to that US$100/share resistance point I get a little less excited about the stock.  I am thinking about selling my holding for a solid profit.  

Still a solid brand and product launches sound solid but my instinct is having embraced weakness I should also embrace some strength (to sell). 

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