Undervalued Movado Group Inc – FCF/EV Yield of 14%

Johnny HopkinsMOV, Stocks Comments

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One of the cheapest stocks in our Acquirer’s Multiple, All Investable – Stock Screener is Movado Group Inc (NYSE:MOV).

Movado Group Inc (Movado) designs, sources, markets and distributes luxury watches. The company operates in both wholesale and retail segments throughout the U.S. and internationally. It has international operations in Europe, the Middle East and Asia. Its portfolio of brands includes Coach Watches, Concord, Ebel, ESQ Movado, Scuderia Ferrari Watches, HUGO BOSS Watches, Juicy Couture Watches, Lacoste Watches, Movado and Tommy Hilfiger Watches.

There’s no question that Movado has had a tough run lately due mainly to a difficult retail environment and disruption in its traditional luxury watch revenues caused by the introduction of smartwatches.

With smartwatch sales expected to reach a total value of $17.8 billion dollars in 2020 the company has started to make the necessary changes to compete in the smartwatch space. Movado’s second generation of Android Wear powered by the new Qualcomm Snapdragon Wear Processor means the company is now well positioned in the fully connected smartwatch space.

Movado recently announced its new partnership with Google in launching a new smartwatch collection called Movado Connect. This partnership means both companies can provide combined expertise in watchmaking, design and software that provide consumers with Movado’s traditional luxury watches powered by the latest, cutting-edge technology.

Movado has recognized that consumers are moving away from traditional retail outlets and towards purchases on smartphones and online. Evidence of this can be seen by the company’s online offering Movado.com, the company’s fastest growing business unit with double-digit increases in fiscal 2017. Movado has stated that it will be making significant increases in its digital media investment this year with close to fifty percent of its total media budget being spent on its digital and e-commerce business.

In addition to adding smartwatch technology to its range and increasing its digital and e-commerce footprint Movado has also made the difficult decision to implement a number of cost saving initiatives to overcome the current challenges facing the U.S. fashion watch category and its traditional retail channels. The cost cutting initiatives are expected to deliver $12 million in savings in fiscal 2018 and $50 million on an annualized basis.

Movado is an extremely well run company with a strong balance sheet and ability to generate solid free cash flows. In terms of Movado’s valuation, the company has a FCF/Price Yield of 10% (ttm), a FCF/EV Yield of 14% (ttm), and an Acquirer’s Multiple of 5.52, or 5.52 times operating earnings. When you consider that Movado has $474 million in equity and zero in intangibles that means the company has a TBV per share of $20.65, just 11% below its current share price of $23.25.

All of this combined with a quick ‘back of the envelope’ projected free cash flow calculation shows that Movado is clearly in undervalued territory.

You can find our full stock analysis on Movado Group Inc at ValueWalk here.

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