Sotheby's - Value

Sotheby's (BID) had a hot first half of the year as the rich returned to the art world. Yet the company still has attractive valuations with a PEG ratio of just 0.7.

Sotheby’s is the auction house that specializes in art auction, private sales and art-related financing activities. It operates in 40 countries and has salesrooms in New York, London, Hong Kong and Paris.

Sotheby's Surprised for the Third Quarter in a Row

On Aug 5, Sotheby's reported second quarter results which blew by the Zacks Consensus by 19%. Earnings per share were $1.26 compared to the consensus of $1.06. The company made just 18 cents in the second quarter of 2009.

How big has the turnaround been? For the first half, net earnings were $1.22 per share compared to a loss of 34 cents in the first half of 2009. As far as income, this was the second best first half in the company's history.

Auction and related revenue soared by 79% in the second quarter due to an increase in auction commission revenue coming off of strong sales around the globe. Combined sales of Impressionist and Contemporary Art rose 154% in the second quarter and 188% in the first half of the year.

Auction commission margins, however, shrank to 18.7% from 21.3% in the second quarter due to a higher percentage of more expensive items going to auction. Once you're over $1 million, the buyer's premium rate falls to 12% from 20%.

Zacks Consensus Estimates Rise

Sotheby's, as usual, gave no guidance. But the analysts continue to revise estimates higher, especially given the bullish first half of the year.

The 2010 Zacks Consensus Estimate rose 24 cents to $1.85 in the last 30 days as 4 estimates moved higher. This is an earnings growth of over 4000% given that the company made just 4 cents in 2009.

Analysts also see the good times lasting until 2011. The 2011 Zacks Consensus has climbed 20 cents to $2.09 in the last month.

This is still solid earnings growth of 13%.

Value Fundamentals

Is Sotheby's the cheapest value stock out there? No.

But at 14.6x forward earnings, it still trades below the industry average of 17.1. It also has an attractive price-to-book ratio of 2.8.

The company's return on equity (ROE) is 17.7% easily beating the industry average of 10.8%.

Sotheby's is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
SOTHEBYS (BID): Free Stock Analysis Report
 
Zacks Investment Research