Greenblatt's Little Book That Beats The Market Message Board

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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market

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From: mikeslemmer	2/9/2006 2:47:00 AM
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Has anyone taken a close look at LIZ? The company's numbers definitely make it a candidate for the Greenblatt-type analysis. One interesting item with LIZ, though, is that they do a large amount of their growth through acquisitions. So, it's important to figure out the return on the capital deployed in those acquisitions. Greenblatt's method for ROIC doesn't work perfectly in this situation because a significant amount of each acquisition will be categorized as Intangibles or as Goodwill. If you ignore those components, the numbers look compelling. TTM EBIT/EV is about 13%. TTM (EBIT / (NWC + NFA)) comes in at 38.8%, which is down from the 49.1% the company posted in 2003, but close to its 5-year average. The company's recent acquisition of Mac & Jac was for $23.6M. Mac & Jac has annual revenue of $40M. LIZ has had pretty stable EBIT/Revenue ratios in the 11% range. Applying this ratio to Mac & Jac gives EBIT of $4.4M, for an EBIT/Deployed Capital ratio of ($4.4M/$23.6M) = 18.6%. This implies to me that LIZ's true ROIC is probably somewhat lower than 38.8% -- maybe in the 30% range overall. To be certain, I plan to look at a few other acquisitions. Obviously, the CEO's planned departure creates uncertainty. I was impressed, however, by the company's willingness to let the JILL deal go to Talbots rather than paying up. The announcement of some job cuts could improve things as well. Any thoughts?

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