TIF | Staying Short

Takeaway: TIF miss blows up bull case that this is a great company at a defendable valuation. Hardly financial management befitting a 'Best-in-Breed'

TIF missed yet again, blowing up the bull case that this is a great company at a defendable valuation. The forecastability of this cash flow stream is the worst we've ever seen outside of the Great Recession. If you did not think we were headed for a recession yesterday, you've got to give it serious credence today. Unfortunately, in a recession TIF earnings could still go meaningfully lower (I.e. $3.00).

 

We acknowledge that TIF is a very good (once great) brand and company. But let's be honest...this company guided down more in the past year than it had it the preceding decade. That's hardly financial management befitting a Best-in-Breed company.

 

Barring a complete reset in Street numbers (down to the $3.50 range) we'll stay short.

 

If the stock holds in there (~$65), then it will still be worth shorting due to lack of valuation support.

 

Additional details...

 

Stating the obvious this was a really bad number out of TIF this morning, reporting -5% constant currency comps for the months of November and December vs. consensus at 2.7% for all of 4Q. All regions of the globe, except for Japan, reported negative comps over the Holiday selling period. Earnings expectations for the quarter now sit at the bottom end of the previously announced range.

 

The key questions we were asking as we headed into this sales release was why earnings NEED to grow next year.  TIF answered that in its preliminary guidance for 2016 calling for minimal growth in both sales and earnings. That translates to $3.90 vs. the Street at $4.30.

 

The reality is that there are no obvious margin levers to offset the declining growth profile in the business, especially amidst increased late cycle risks. The price has come off (down another 5% at the open), but so have earnings. It is trading near a peak multiple on our numbers (17x) on peakish margins (19%-20%) on an earnings number that is not likely to grow for 2-3 years absent financial engineering. 


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