Barron's Says Saks (SKS) Could Rise By More Than 50%
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Barron's thinks luxury retailer, Saks (NYSE: SKS) is undervalued and poised to rise. In recent weeks, Saks has been heavily discounting its products by as much as 70%, but Saks' stock has been slashed by even more than its wares. Saks is down approximately 80%, to under 4, from a high of 22 a year ago.
First, Barron's notes Saks is not giving '09 guidance earnings, so valuing the stock isn't an easy task. "But Saks has a powerful global brand name and isn't sitting around waiting for good times to return. In addition to the markdowns, the company is cutting capital expenditures to $75 million next year from about $125 million this year," says Barrons.
Barron's like that Saks owns (it owns 30% of its 101 stores) some of the most valuable real estate in cities across the country. Money manager Nicholas Galluccio, who runs Teton Advisors, estimates that Saks Fifth Avenue store at Fifth Avenue and 50th Street in NYC is worth somewhere around $500 million, which is pretty close to Saks' current market capitalization of $543 million.
"The value of all its property and lease portfolio, "generally A locations," is probably several multiples of the flagship store, so even after subtracting $650 million in debt, the stock is selling at a sizable discount to the underlying real-estate values," notes Barrons.
Citi Investment Research puts the value of Saks' real estate at $1.46 billion. Saks won't make a profit this year and most likely will not make a profit next year. But in more typical times, Galluccio figures Saks could earn 50 to 60 cents a share and should merit a PE ratio of 10 to 12. That implies a stock price of $5 to $7 a share, over 50% from where Saks is trading at today.
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Saks Incorporated operates Saks Fifth Avenue (SFA), Off Fifth and Club Libby Lu (CLL).
First, Barron's notes Saks is not giving '09 guidance earnings, so valuing the stock isn't an easy task. "But Saks has a powerful global brand name and isn't sitting around waiting for good times to return. In addition to the markdowns, the company is cutting capital expenditures to $75 million next year from about $125 million this year," says Barrons.
Barron's like that Saks owns (it owns 30% of its 101 stores) some of the most valuable real estate in cities across the country. Money manager Nicholas Galluccio, who runs Teton Advisors, estimates that Saks Fifth Avenue store at Fifth Avenue and 50th Street in NYC is worth somewhere around $500 million, which is pretty close to Saks' current market capitalization of $543 million.
"The value of all its property and lease portfolio, "generally A locations," is probably several multiples of the flagship store, so even after subtracting $650 million in debt, the stock is selling at a sizable discount to the underlying real-estate values," notes Barrons.
Citi Investment Research puts the value of Saks' real estate at $1.46 billion. Saks won't make a profit this year and most likely will not make a profit next year. But in more typical times, Galluccio figures Saks could earn 50 to 60 cents a share and should merit a PE ratio of 10 to 12. That implies a stock price of $5 to $7 a share, over 50% from where Saks is trading at today.
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Saks Incorporated operates Saks Fifth Avenue (SFA), Off Fifth and Club Libby Lu (CLL).
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