Wolverine Worldwide (WWW) recently reported its fifth consecutive positive earnings surprise on record quarterly revenue.
Despite the strong quarter, management reiterated its revenue and EPS guidance for the remainder of the year. Perhaps they were being too conservative though, as analysts have been raising their earnings estimates over the last few days, sending the stock to a Zacks #2 Rank (Buy).
Based on consensus estimates, Wolverine is expected to grow EPS by 14% in 2011 and 11% in 2012. On top of this growth, the company pays a dividend that yields 1.2%.
Valuation looks attractive too with shares sporting a PEG ratio around 1.0.
Company Description
Wolverine Worldwide markets branded casual, active lifestyle, work, outdoor sport and uniform footwear and apparel. The company offers well-known brands like Bates®, Chaco®, Cushe(TM), Hush Puppies®, HYTEST®, Merrell®, Sebago® Soft Style® and Wolverine®. Wolverine is also the exclusive footwear licensee of popular brands, including CAT®, Harley-Davidson® and Patagonia®.
The company was founded in 1883 and is headquartered in Rockford, Michigan. It has a market cap of $1.95 billion.
EPS Up 23%
On July 12, Wolverine Worldwide reported second quarter earnings per share of 48 cents, beating the Zacks Consensus Estimate by 2 cents. It was a 23.1% increase over the same quarter in 2010.
Revenue for the quarter rose 20.1% to a record $310.1 million. This also came in ahead of the Zacks Consensus Estimate, which called for revenue of $294.0 million. The company experienced double-digit revenue growth for all of its brand groups and across all major geographic regions.
The Outdoor Group was particularly strong with revenue up 30.0% year-over-year.
Gross profit as a percentage of revenue declined, however, from 40.3% to 39.4%. The company was still able to report a record operating margin of 10.8% as the company leveraged its fixed operating expenses.
Reiterated Guidance, Estimates Rise Anyway
Despite better than expected Q2 results, management reiterated its revenue and earnings guidance for the remainder of 2011. The company expects to earn between $2.40 and $2.50 per share on revenue of $1.380 to $1.420 billion.
Perhaps this guidance was a bit conservative. Analysts have been raising their estimates over the last few days, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts are projecting 14% EPS growth in 2011 to $2.48 per share and 11% next year to $2.76.
Dividend
Wolverine has been steadily raising its dividend over the last decade. Since 2001, the company has raised it at a compound annual rate of 16.2%.
After holding its dividend steady in 2009 and 2010, the company raised it by 9% in the beginning of 2011. It currently yields 1.2%.
Valuation
Valuation looks very reasonable for WWW with shares trading at 15.8x forward earnings, a slight discount to the industry average of 16.1x. Its PEG ratio sits right around 1.0 based on a 5-year EPS growth rate of 15.0%.
Wolverine Worldwide also has a solid balance sheet and carries no long-term debt.
The Bottom Line
Wolverine delivered another strong quarter marked by record revenue and a record operating margin. Although management didn’t raise its guidance, analysts are a little more bullish and have been raising their estimates. With a growing dividend, strong earnings momentum, and a PEG ratio near 1.0, Wolverine Worldwide looks very attractive.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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