Regis Corp. [NYSE:RGS] 12/24/07 closing price: $28.32
Yield = 0.6% 52-week range: $26.31 - $43.35
Regis is an owner and franchiser of over 12,400 hairstyling salons operating as Regis, SuperCuts, MasterCuts, Trade Secret, WalMart [in store units] and International brand names. They also own 49% of the Empire Beauty School - the largest in America.
Also, and hard not to smile... the Hair Club for Men. [I am NOT a customer].
Although the past two quarters have seen earnings dip slightly year-over-year, the FY [ending June 2008] is likely to come in at $2.14 - $2.20 versus $2.07 in the prior 12 months. Preliminary estimates for the following FY are now at $2.35 /share.
Regis shares have dropped from last February's high of $43.30 making these shares look attractive right now. The 10-year median P/E has been a not too volatile 17X mulitple while today's quote puts RGS at just 13.1X this year's and 12.1X next FY's expectations.
A normalized 17X next year's EPS leads to a target price of $39.95 or + 41% from today's price. Is this achievable? RGS actually traded as high as $41.60, $46.90, $46.60, $43.50 and $43.30 at its peaks in 2003, 2004, 2005, 2006 and 2007 respectively on pretty much the same fundamentals as exist presently.
Value Line assigns Regis a B+ financial strength rating with 90th percentile earnings predictability. LT debt is a reasonable 36% of capitalization. Total interest coverage is a healthy 4.5X.
The company has already completed $176.5 MM of a $300 MM authorized share buyback.
If you're of the mind that the US is entering a recession... then perhaps people will be trading down to Regis hair salons from pricier ones over the next year or two.
Four of our Gurus currently own these shares- and at higher levels than the current price.
Having already been 'clipped' - Regis Corp. shares look to offer 40 - 50% upside and modest risk [RGS now sells for well under the LOWS from the years 2004 - 2006].
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