Intrinsic value of Kate Spade - KATE

Previous Close

$18.49

  Intrinsic Value

$20.08

stock screener

  Rating & Target

hold

+9%

  Value-price divergence*

+5000%

Previous close

$18.49

 
Intrinsic value

$20.08

 
Up/down potential

+9%

 
Rating

hold

 
Value-price divergence*

+5000%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KATE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.10
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,381
  1,409
  1,441
  1,478
  1,520
  1,566
  1,616
  1,671
  1,731
  1,795
  1,864
  1,938
  2,016
  2,100
  2,189
  2,283
  2,384
  2,489
  2,601
  2,720
  2,845
  2,977
  3,116
  3,262
  3,417
  3,579
  3,751
  3,931
  4,121
  4,320
  4,530
Variable operating expenses, $m
 
  269
  275
  282
  290
  298
  308
  318
  329
  341
  354
  363
  378
  394
  410
  428
  447
  466
  487
  510
  533
  558
  584
  611
  640
  671
  703
  737
  772
  810
  849
Fixed operating expenses, $m
 
  997
  1,022
  1,048
  1,074
  1,101
  1,128
  1,157
  1,186
  1,215
  1,246
  1,277
  1,309
  1,341
  1,375
  1,409
  1,444
  1,481
  1,518
  1,555
  1,594
  1,634
  1,675
  1,717
  1,760
  1,804
  1,849
  1,895
  1,943
  1,991
  2,041
Total operating expenses, $m
  1,198
  1,266
  1,297
  1,330
  1,364
  1,399
  1,436
  1,475
  1,515
  1,556
  1,600
  1,640
  1,687
  1,735
  1,785
  1,837
  1,891
  1,947
  2,005
  2,065
  2,127
  2,192
  2,259
  2,328
  2,400
  2,475
  2,552
  2,632
  2,715
  2,801
  2,890
Operating income, $m
  184
  142
  144
  148
  156
  166
  180
  197
  216
  239
  264
  298
  330
  365
  404
  446
  492
  542
  596
  655
  717
  785
  857
  934
  1,017
  1,105
  1,199
  1,299
  1,406
  1,519
  1,640
EBITDA, $m
  233
  165
  166
  171
  180
  191
  205
  222
  242
  266
  292
  322
  355
  391
  431
  474
  522
  573
  628
  688
  752
  821
  895
  974
  1,059
  1,149
  1,245
  1,347
  1,457
  1,573
  1,696
Interest expense (income), $m
  17
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  48
  50
  53
  56
  60
  63
  67
  70
  74
  79
Earnings before tax, $m
  156
  126
  126
  130
  137
  147
  159
  175
  193
  214
  239
  271
  301
  335
  372
  413
  457
  505
  556
  612
  672
  737
  806
  881
  960
  1,045
  1,136
  1,232
  1,335
  1,445
  1,562
Tax expense, $m
  4
  34
  34
  35
  37
  40
  43
  47
  52
  58
  64
  73
  81
  90
  100
  111
  123
  136
  150
  165
  182
  199
  218
  238
  259
  282
  307
  333
  361
  390
  422
Net income, $m
  154
  92
  92
  95
  100
  107
  116
  128
  141
  157
  174
  198
  220
  245
  272
  301
  333
  368
  406
  447
  491
  538
  589
  643
  701
  763
  829
  900
  975
  1,055
  1,140

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  519
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,110
  794
  812
  833
  857
  883
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,287
  1,344
  1,403
  1,466
  1,533
  1,604
  1,678
  1,756
  1,839
  1,926
  2,018
  2,114
  2,216
  2,323
  2,435
  2,554
Adjusted assets (=assets-cash), $m
  591
  794
  812
  833
  857
  883
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,287
  1,344
  1,403
  1,466
  1,533
  1,604
  1,678
  1,756
  1,839
  1,926
  2,018
  2,114
  2,216
  2,323
  2,435
  2,554
Revenue / Adjusted assets
  2.337
  1.775
  1.775
  1.774
  1.774
  1.773
  1.774
  1.774
  1.774
  1.774
  1.774
  1.775
  1.773
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
  1.774
Average production assets, $m
  170
  173
  177
  182
  187
  193
  199
  206
  213
  221
  229
  238
  248
  258
  269
  281
  293
  306
  320
  335
  350
  366
  383
  401
  420
  440
  461
  484
  507
  531
  557
Working capital, $m
  534
  20
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
Total debt, $m
  393
  403
  419
  437
  457
  480
  505
  532
  561
  592
  626
  662
  701
  742
  785
  832
  881
  932
  987
  1,045
  1,107
  1,171
  1,239
  1,311
  1,387
  1,466
  1,550
  1,639
  1,731
  1,829
  1,932
Total liabilities, $m
  680
  690
  706
  724
  744
  767
  792
  819
  848
  879
  913
  949
  988
  1,029
  1,072
  1,119
  1,168
  1,219
  1,274
  1,332
  1,394
  1,458
  1,526
  1,598
  1,674
  1,753
  1,837
  1,926
  2,018
  2,116
  2,219
Total equity, $m
  430
  104
  106
  109
  112
  116
  119
  123
  128
  133
  138
  143
  149
  155
  162
  169
  176
  184
  192
  201
  210
  220
  230
  241
  252
  264
  277
  290
  304
  319
  335
Total liabilities and equity, $m
  1,110
  794
  812
  833
  856
  883
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,288
  1,344
  1,403
  1,466
  1,533
  1,604
  1,678
  1,756
  1,839
  1,926
  2,017
  2,114
  2,216
  2,322
  2,435
  2,554
Debt-to-equity ratio
  0.914
  3.870
  3.940
  4.000
  4.080
  4.150
  4.230
  4.310
  4.390
  4.470
  4.550
  4.630
  4.710
  4.780
  4.860
  4.930
  5.000
  5.070
  5.140
  5.200
  5.270
  5.330
  5.390
  5.440
  5.500
  5.550
  5.600
  5.640
  5.690
  5.730
  5.780
Adjusted equity ratio
  -0.144
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  154
  92
  92
  95
  100
  107
  116
  128
  141
  157
  174
  198
  220
  245
  272
  301
  333
  368
  406
  447
  491
  538
  589
  643
  701
  763
  829
  900
  975
  1,055
  1,140
Depreciation, amort., depletion, $m
  49
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
Funds from operations, $m
  247
  114
  115
  118
  124
  131
  141
  153
  167
  184
  202
  222
  245
  270
  299
  329
  363
  399
  438
  480
  526
  575
  627
  683
  743
  807
  875
  948
  1,026
  1,108
  1,196
Change in working capital, $m
  2
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  245
  114
  115
  118
  123
  131
  141
  152
  166
  183
  201
  221
  244
  269
  297
  328
  361
  397
  437
  479
  524
  573
  625
  681
  741
  805
  873
  946
  1,023
  1,105
  1,193
Maintenance CAPEX, $m
  0
  -17
  -17
  -18
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
New CAPEX, $m
  -47
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
Cash from investing activities, $m
  -59
  -20
  -21
  -23
  -23
  -25
  -25
  -27
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -45
  -47
  -48
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -76
  -79
Free cash flow, $m
  186
  93
  93
  95
  100
  106
  115
  126
  139
  154
  171
  189
  210
  234
  261
  289
  321
  355
  392
  432
  475
  522
  571
  625
  682
  743
  808
  877
  951
  1,030
  1,114
Issuance/(repayment) of debt, $m
  -5
  14
  16
  18
  20
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
  93
  98
  103
Issuance/(repurchase) of shares, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -3
  14
  16
  18
  20
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
  93
  98
  103
Total cash flow (excl. dividends), $m
  181
  107
  109
  114
  120
  129
  140
  153
  168
  185
  204
  225
  249
  275
  304
  336
  370
  407
  447
  490
  536
  586
  639
  696
  757
  822
  892
  966
  1,044
  1,128
  1,217
Retained Cash Flow (-), $m
  -185
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
Prev. year cash balance distribution, $m
 
  328
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  433
  107
  111
  117
  126
  136
  149
  163
  180
  199
  219
  243
  269
  298
  329
  363
  399
  439
  481
  527
  576
  629
  686
  746
  810
  879
  952
  1,030
  1,113
  1,201
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  416
  98
  96
  96
  97
  99
  100
  102
  104
  104
  104
  104
  102
  100
  97
  92
  87
  81
  74
  67
  60
  52
  45
  38
  32
  26
  20
  16
  12
  9
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Kate Spade & Company, together with its subsidiaries, designs and markets apparel and accessories. The company operates in three segments: KATE SPADE North America, KATE SPADE International, and Adelington Design Group. It offers briefcases, hand bags, small leather goods, fashion accessories, jewelry, and apparel for men, women, and children; and licensed products, including footwear, fragrances, swimwear, watches, children's wear, tech accessories, optics, tabletop products, legwear, fashion accessories, furniture, bedding, housewares, table linens, loungewear, pillows, lighting products, activewear, and stationery. The company markets and sells its products under the AXCESS, KATE SPADE SATURDAY, JACK SPADE, MARVELLA, KATE SPADE, MONET, kate spade new York, and TRIFARI brand names. It also designs, develops, and supplies jewelry for the LIZ CLAIBORNE and MONET brands; and licenses LIZWEAR brands. The company sells its products through specialty retail and outlet stores, specialty retail and upscale department stores, and concession stores and upscale wholesale accounts; and a network of distributors, as well as e-commerce platform. As of December 31, 2016, it had 104 specialty retail stores and 64 outlet stores in the United States; and 22 specialty retail stores, 52 concessions, and 13 outlet stores internationally. The company was formerly known as Fifth & Pacific Companies, Inc. and changed its name to Kate Spade & Company in February 2014. Kate Spade & Company was founded in 1976 and is based in New York, New York.

FINANCIAL RATIOS  of  Kate Spade (KATE)

Valuation Ratios
P/E Ratio 15.4
Price to Sales 1.7
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 9.7
Price to Free Cash Flow 12
Growth Rates
Sales Growth Rate 11.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.5%
Cap. Spend. - 3 Yr. Gr. Rate -6.3%
Financial Strength
Quick Ratio 130
Current Ratio -0
LT Debt to Equity 90.5%
Total Debt to Equity 91.4%
Interest Coverage 10
Management Effectiveness
Return On Assets 16.4%
Ret/ On Assets - 3 Yr. Avg. 0.5%
Return On Total Capital 21%
Ret/ On T. Cap. - 3 Yr. Avg. 18.8%
Return On Equity 45.6%
Return On Equity - 3 Yr. Avg. 80.9%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 59.9%
Gross Margin - 3 Yr. Avg. 60.1%
EBITDA Margin 16.1%
EBITDA Margin - 3 Yr. Avg. 10.1%
Operating Margin 13.3%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 11.3%
Pre-Tax Margin - 3 Yr. Avg. 4.2%
Net Profit Margin 11.2%
Net Profit Margin - 3 Yr. Avg. 8.8%
Effective Tax Rate 2.6%
Eff/ Tax Rate - 3 Yr. Avg. 360.1%
Payout Ratio 0%

KATE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KATE stock intrinsic value calculation we used $1381 million for the last fiscal year's total revenue generated by Kate Spade. The default revenue input number comes from 2016 income statement of Kate Spade. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KATE stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for KATE is calculated based on our internal credit rating of Kate Spade, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Kate Spade.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KATE stock the variable cost ratio is equal to 19.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $973 million in the base year in the intrinsic value calculation for KATE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Kate Spade.

Corporate tax rate of 27% is the nominal tax rate for Kate Spade. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KATE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KATE are equal to 12.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Kate Spade operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KATE is equal to 1.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $430 million for Kate Spade - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 126.997 million for Kate Spade is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Kate Spade at the current share price and the inputted number of shares is $2.3 billion.

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Financial statements of KATE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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