Is the S&P Cheap?
As I returned from a London trip last week, I got lots of comments from traders about how the S&P is now tradingat roughly 13 times 2011 consensus earnings estimates of $95. That certainly seems comparatively cheap. Two problems:
1) no one believes the $95 estimate is going to hold. The market is telling you that: everyone is waiting for pre-announcements, and then the analysts will start lowering their numbers.
2) $95 is a tough number to get to in the best of times. One trader noted to me that in 2007 when everything seemed perfect we got to $87 in EPS and now with a lot of things going wrong we are going to get to $95?
I've been asked several times why VF Corp paid such a high premium for Timberland . Even S&P agrees it's a stiff price: according to them, the deal values TBL at 10.2 times their 2011 EBITDA estimate, toward the high end of the company's 10-year historical range of 3.7X to 15.3X.
The answer is pretty simple: global action sports is the heart of apparel growth. Hiking, climbing, trail running, canoeing, all that type of stuff is the beat growth category in apparel, traders tell me. That's why VFC gets a premium for owning North Face.
The aging baby boomers want to travel and hike in their old age and do it in comfort...and they have the money to do it. People will spend more on a coat to go hiking than on a coat to go to work. Same with shoes or boots.
Look at their competitor Wolverine , which owns Merrell hiking shoes. At $39, it is just shy of an historic high. I own two pairs of Merrell.
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