Morningstar | Pandora's Profit Warning Is Likely to Result in 10%-15% FVE Adjustment; Shares Still Cheap
We expect to reduce our fair value estimate for Pandora by 10%-15% per share following the announced profit warning. We expect to make changes to our models after the analyst call on Aug. 9 after the firm announces more details regarding its performance and strategic direction. While we plan to incorporate lower growth and profitability in the near term, we believe those are now being more than discounted by the market, providing ample margin of safety. The stock is trading at 7.4 times 2018 earnings and 5.7 times 2018 EBITDA, the lowest level since 2012.Pandora now expects 4%-7% constant-currency growth (from previous guidance of 7%-10%). However, this would be achieved with 10% net addition in concept stores (8% previously) and 6% growth from acquisitions made in 2017 and 2018 (from 4% previously). This underscores the much weaker performance of underlying business and obviously weighs on profitability--EBITDA margins are now expected at 32% versus previous guidance of 35%. The firm also announced a headcount reduction of 1%, with over half of that in the manufacturing unit, which would bring savings of DKK 150 million from 2019.
The areas of interest for the company call would be the performance of new collections, which has likely been disappointing, and why this was the case; whether the store expansion plans still make sense; and the rationale for expansion in light of shrinking sales (at retail value).
Still, we acknowledge the possible risks the firm is facing--notably its over-reliance on one narrow product niche, which may attract competition as it matures, or turn out to be a passing trend, as well as its growing cost base (through store expansion) as retail productivity is falling. Nonetheless, in our experience, brands go through relative ups and downs in their histories, and since Pandora benefits from global presence, good brand recognition, and a loyal customer base, we believe the possibility of the brand’s turnaround should not be disregarded.
Pandora designs, manufactures and markets jewelry made from genuine metals. Co. designs, produces and sells charms, bracelets, rings, necklaces, pendants and earrings. Co.'s products are made from gold, silver, gemstones, cultured pearls and stones and other jewelry materials. Co.'s jewelry is sold in more than 90 countries on six continents through approximately 9,900 points of sale, including more than 1,400 concept stores. Co.'s products are sold globally through such points of sale as concept stores, silver stores, gold stores, shop-in-shops and white stores.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.