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FMA SMIF Presentation Analyst Report Fossil Inc. (FOSL) By Adib Motiwala [email protected] MBA Student, UTD Feb 15, 2008 Analyst Profile Currently, MBA (Finance) student @ UTD IT Consultant @Valtech (7 years experience in IT) Background MS in Computer Science @Texas A&M

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Fma smif presentation l.jpg

FMASMIF Presentation

Analyst Report

Fossil Inc. (FOSL)

By

Adib Motiwala

[email protected]

MBA Student, UTD

Feb 15, 2008

The University of Texas at Dallas


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Analyst Profile

  • Currently,

    • MBA (Finance) student @ UTD

    • IT Consultant @Valtech (7 years experience in IT)

  • Background

    • MS in Computer Science @Texas A&M

    • BE in Computer Engineering @Bombay University

The University of Texas at Dallas


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Company profile

  • Fossil is headquartered in Richardson, Texas and founded in 1984.

  • Small Cap Company in the Consumer Goods Sector.

  • Engages in the design, development, marketing, and distribution of fashion accessories, including apparel, belts, handbags, jewelry, small leather goods, sunglasses, and watches under proprietary and licensed brand names worldwide.

  • Well known Brand.

  • 200 company owned and operated retail stores.

  • Focus on higher-priced watches and handbags.

  • Strong international presence (50% international sales)

  • Current Price = $34.775 ( Feb 14, 2008)

The University of Texas at Dallas


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Competitors

  • Guess? Inc. (GES)

  • Coach Inc.(COH)

  • Movado Group Inc.(MOV)

The University of Texas at Dallas


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Key ratios

Forward P/E ~ 17

P/E 5 year range (12.5 – 39.9)

Price / Sales = 1.84

Price / Book = 3.54

Price / Cash flow = 18.3

ROA = 10%

ROE = 16%

ROC = 15%

Earnings growth rate (2007) = 48%

Financials

The University of Texas at Dallas


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Growth Rates

The University of Texas at Dallas


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Breakdown of Sales Segments

The University of Texas at Dallas


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Investment Merits

  • Strong balance sheet ($180M cash)

  • Large insider holding ~ 36%

  • ROE > 15%, ROA > 10%, ROC > 15%

  • Positive Free Cash Flow (FCF)

  • Internationally Diversified, Sales growing overseas may help counter possible slowdown in US consumer spending.

  • Long duration of Management: Founder has been with the company since beginning, now Chairman of Board. CEO has been with the company since 1988 and the COO since 1985.

The University of Texas at Dallas


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Investment risks

  • Slowdown in US consumer spending could hurt Fossil.

  • New products may not favor with consumers.

  • Consumers for fashion accessories are known to be fickle.

  • Foreign currency risk ( mainly to Euro and British Pound ).

  • Competitors may introduce good alternatives to get market share.

  • Threat from cheap copies, especially in overseas markets.

The University of Texas at Dallas


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Valuation

  • Future Value / Present Value

    (1) Current EPS = 1.5, Expected Growth = 15, Years = 5, P/E Expected = 22, FV ~ $66

    (2) Current EPS = 1.5, Expected Growth = 19, Years = 5, P/E Expected = 25, FV ~ $89

    Now with a discount rate = 14, we get Buy $35 - $46 for the two scenarios above. We will consider the lower price range for the Buy price.

    Recommend Buy around $35

The University of Texas at Dallas


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Method of Comparables

The University of Texas at Dallas


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References

  • Yahoo Finance - http://finance.yahoo.com/q/pr?s=FOSL

  • MSN Money - http://moneycentral.msn.com/investor/research/newsnap.asp?Symbol=FOSL

  • Google Finance - http://finance.google.com/finance?q=fosl

  • FV Calculator - http://pencils2.com/fvpvcalculator.html

  • Fossil.com – http://www.fossil.com

The University of Texas at Dallas


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