(B)(N) PVH PVH Corporation
Drama. The PVH Corporation helps us to dress for success comfortably in cotton with their world-renowned brands such as Van Heusen, Arrow, Tommy Hilfiger, Calvin Klein, Geoffrey Beene, and so many others that they make, sell, or market (The Street, June 13, 2013, Cramer: Way More Upside for PVH)
Courtesy: PVH Corporation
The stock market, however, does not appreciate a good brand and global marketing prowess but wants instant gratification and ready-to-wear with every quarter’s earnings report and their breathless projections. But they don’t have any access to the earnings or anything to do with them.
The Second-hand Stock
They’re just humping up the ladder of success, buying and selling the second-hand stock to each other. And if nobody wants to buy it, well, guess what, somebody might end up owning it for next to nothing.
PVH has a market value of about $10 billion and annual sales of about $6 billion and earnings of about $400 million or $4 to $6 per share which they dole out to us at the rate of a dividend of $0.038 per share per quarter or $12 million per year for a microscopic yield of 0.12% (12 basis points).
We can see (please see Exhibit 1 below) that PVH might have missed on a quarter a few months ago and the stock hit $120 in mid-February on ten-times the normal daily volume of about a million shares, and again in mid-March, before it plunged to $105 in early April on sustained selling over several days. Go figure.
The stock is trading now at $123 and well above the current Risk Price (SF) of $110. Our estimate of the downside risk in the stock price due to the demonstrated volatility is minus ($12.50) per share so that we might expect a stock price of anything between the current $123 and $110 to $135 without surprise.
And to assure that we’re not surprised, we could afford the stop/loss at $115, say, but also buy a different type of “collar” from the “market vendor” by buying the September put at $120 for $5.60 per share and selling the September call at $125 for $6.30 per share, today.
That means that we can keep our shirts on at between $120 and $125 for the next several months, and also pay ourselves a dividend of $0.70 per share ($5.60 less $6.30) for a current yield of 0.60% (60 basis points) to add to the company’s 12.
Exhibit 1: (B)(N) PVH PVH Corporation – Risk Price Chart
(B)(N) PVH PVH Corporation
PVH Corp is an apparel company, which designs and markets branded dress shirts, neckwear, sportswear and, to a lesser extent, footwear and other related products.
(Please Click on the Chart to make it larger if required.)
From the Company: PVH Corp. operates as an apparel company in the United States and internationally. It engages in the design, marketing, and retail of branded dress shirts, neckwear, sportswear, footwear, athletic apparel, body wear, eyewear, sun wear, watches, handbags, mens tailored clothing, mens dress furnishings, accessories, womens dresses and suits, socks, small leather goods, fragrances, home and bedding products, bathroom accessories, and luggage. The company offers its products under the own brands, such as Calvin Klein and Tommy Hilfiger, as well as Van Heusen, IZOD, Bass, ARROW, and Eagle; and licensed brands comprising Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, JOE Joseph Abboud, MICHAEL Michael Kors, Michael Kors Collection, Chaps, Donald J. Trump Signature Collection, DKNY, Elie Tahari, Nautica, Ted Baker, J. Garcia, Claiborne, Robert Graham, U.S. POLO ASSN., Ike Behar, Axcess, Jones New York, and John Varvatos. It also licenses its own brands over a range of products. The company distributes its products at wholesale in national and regional department, mid-tier department, mass market, and specialty and independent stores in the United States and Canada, as well as through e-commerce Websites. PVH Corporation was founded in 1881, has 12,000 employees, and is based in New York, New York.
The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.
Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.
To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.
Postscript
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