Tiffany: A Gem for Growth Investors

06/12/2018 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Tiffany (TIF) is one of the better-known jewelry retailers in the U.S. and around the world, but it hasn’t been a great growth company for many years; sales growth has ranged between -3% and +6% each of the past six years, explains Mike Cintolo, growth stock expert and editor Cabot Top Ten Trader.

But that trajectory looks to be changing, thanks to a better economic environment, and some of Tiffany’s strategic initiatives (such as its new Believe in Love advertising campaign, upgraded website, broader distribution and cost controls).

Whatever the cause, Wall Street likes what it sees: In Q1, not only did revenues rise 15% (the fastest pace in years), but strength was seen across product lines and geographies (including a 28% sales gain in Asia), and same-store sales boomed 10% (though, to be fair, some of that was due to currency movements).

Cost controls and a lower tax rate helped the bottom line rise 54%, which was miles above expectations, and the top brass isn’t being shy about returning some of that profit to shareholders — the dividend was boosted 10% (annual yield now 1.7%) and said it’s likely to buy back $250 million of stock in the current quarter (about 1.5% of shares outstanding), with more coming beyond that.

Tiffany isn’t suddenly an amazing growth company (analysts see earnings up 14% this year and 12% next), but after a few years in the wilderness, big investors believe better times are ahead.

Technically, TIF has a fantastic long-term chart, with a big peak in November 2014 at 111, a bottom at 57 in June 2016 and a rally back to 111 in January of this year.

Then came another base-building effort (a handle to a multi-year cup) during the market’s correction, with the breakout (up 23% on six times average volume!) coming after earnings two weeks ago and excellent follow-through since. Any modest weakness looks buyable to us.

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