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Tiffany's (TIF) Strategic Efforts Bode Well: Should You Hold?

URBN PLCE TIF

Trades from $3

A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. These stocks rally as soon as the market enters into a correction mode. Here we discuss one such stock, Tiffany & Co. (TIF - Free Report) with expected long-term earnings per share growth rate of 9.5% and a VGM Score of “A”. In the past three months, the stock has advanced roughly 24%.

Driving Factors

Tiffany holds a significant position in the world jewelry market due to its distinctive brand appeal. The company is well positioned to augment both its top- and bottom-line performance in the long run by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. It is also looking at other revenue generating avenues, and this includes expansion into the watch business.

With nearly half of its total sales generated internationally, we believe that the company is well diversified from a regional perspective as well. Tiffany is also focusing on enhancing its omni-channel platform. Previously, it had notified that its long-term objective is to attain ROA of at least 10% and ROE of at least 15%.

The company is focused on opening smaller stores that offer selected collections of lower priced higher-margin products, which in turn boost store productivity. Tiffany concentrates on improving sales per square foot through an increase in customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.

Concerns

Tiffany's dwindling top and bottom-line performance remains the primary concern for investors. A look at the company's performance in fiscal 2015 unveils that earnings per share fell 7.9% and 3% year over year in the third and fourth quarters, respectively. We also observe that net sales declined 2.2% and 6% in the respective periods. During fiscal 2016, earnings per share fell 21% and 2% in the first and second quarters, respectively, while net sales declined 7% and 6%. A mature domestic market, cautious consumer spending and foreign currency headwinds continue to pose concerns.

Taking the pros and cons into consideration, the stock currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Investors may consider better-ranked stocks such as Outerwall Inc. , The Children's Place, Inc. (PLCE - Free Report) and Urban Outfitters Inc. (URBN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Outerwall Inc. delivered an average positive earnings surprise of 75.5% over the trailing four quarters and has a long-term earnings growth rate of 10%.

The Children's Place, Inc. delivered an average positive earnings surprise of 33.1% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Urban Outfitters Inc. delivered an average positive earnings surprise of 6.7% over the trailing four quarters and has a long-term earnings growth rate of 15%.

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