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Alberto Abaterusso
Alberto Abaterusso
Articles (1342) 

Does Chico's FAS Represent a Deal?

The US women's clothing retailer is set for further dividend hikes

November 26, 2018 | About:

The share price of Chico's FAS Inc. (NYSE:CHS) – the U.S. women’s clothing and accessories retailer – declined 16% for the 52 weeks through Nov. 23 to $7.10, sending the forward dividend yield up to 4.79%. The yield is impressive if we consider that the S&P500 index dividend yield is 1.99% and the industry median is 2.29% as of Friday.

The stock is also compelling because it is cheap. The share price at close Friday was abundantly below the 50-, 100- and 200-day simple moving average lines, as the chart from GuruFocus shows.

The share price is also 24% below the midpoint of the 52-week range of $6.66 to $10.90.

The price-book ratio is 1.39 versus an industry median of 1.63, and the price-sales ratio is 0.4 compared to an industry median of 0.68.

The Peter Lynch chart from GuruFocus is also indicating an interesting entry point since the share price is below both the Peter Lynch Earnings Line (P/E = 15) and the Price at Med P/E without NRI (P/E = 23.45).

Further, the price-earnings ratio of 10 leads to an earnings yield of 10%, which is more than double the 20-Year High-Quality Market (HQM) Corporate Bond Spot Rate. According to the Federal Reserve Bank of St. Louis, the monthly spot rate on 20-Year HQM Corporate Bonds, which represent corporate loans issued by triple-A, double-A and single-A rated companies, was 4.53% in September.

Chico's FAS Inc. satisfies the lifestyle needs of fashion-savvy women who are 35 years and older. The company has three well-known private branded apparels, accessories and beauty products in its portfolio. These brands are Chico's, White House Black Market and Soma.

The company operates in the U.S. and Canada through more than 1,450 boutiques and outlets and through franchise locations in Mexico. The company also sells its merchandise online.

The company has paid dividends since 2010. The cash quarterly dividend of 8.5 cents that Chico's FAS will pay on Dec. 21 to its shareholders of record Dec. 10 has increased 3.03% from a year ago. The ex-dividend date is scheduled for Dec. 7. Therefore, the annual dividend rose from 33 cents per share to 34 cents per share in one year.

The GuruFocus chart illustrates that Chico's FAS has increased its dividend per share by an annual average of 9.4% over the past five years while net earnings have grown only 1.11% on average every year over the same period.

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Since analysts are predicting that earnings will grow at a 15% yearly average rate over the next five years through 2023, we can, therefore, expect a substantial growth in Chico's FAS’s dividend per share for the following quarters. A payout ratio of 47% adds to the thesis.

Investors can base their optimism about future rises in the dividend on the fact that the company is financially very strong. That is indicated by a score of 8 out of 10 that GuruFocus has assigned to Chico's FAS’s financial strength.

For the past four quarters through July 31, 2018, the company has distributed about $43.06 million to its shareholders in the form of dividends. That represents a nearly 30% portion of the trailing 12-month free cash flow.

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What about the share price? Is Chico's FAS Inc. going to appreciate, remain stable or decline? Investors do not profit only through dividends paid, but also through value accretion of their investment. Making a prediction on the increased value the stock can acquire in, say, one year is very difficult and is complicated by the fact that the U.S. equities market is down trending. The S&P 500 has lost more than 10% since the end of September or beginning of October.

In contrast to the recent negative trend in the stock market, the share price of Chico's FAS should, according to analysts, appreciate 25.4% within the following 52 weeks. The target price, a mean of ten $6.50 to $12 ranging estimates, is $8.90 per share.

The recommendation rating is 2.9 out of 5.

Over the third quarter, investment firm Barrow, Hanley, Mewhinney & Strauss reduced its position by 9.96% to 395,638 shares, and Joel Greenblatt reduced his position by 73.47% to 97,026 shares.

Ken Fisher started a position, purchasing 34,499 shares.

Disclosure: I have no positions in any securities mentioned.

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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