Wolverine World Wide, Inc. - Growth & Income

Wolverine World Wide, Inc. (WWW) carried its strong momentum into the third quarter and delivered its third consecutive positive earnings surprise. The company is seeing strong top-line growth in each division while also leveraging its operating expenses.

The company also has a history of rewarding its shareholders through dividend increases and stock buybacks. With a PEG ratio of 1.0, this Zacks #2 Rank (Buy) stock looks compelling.

Company Description

Wolverine World Wide markets branded casual, active lifestyle, work, outdoor sport and uniform footwear and apparel. The company offers well-known brands like Bates®, Chaco®, Cushe(TM), Hush Puppies®, HYTEST®, Merrell®, Sebago® Soft Style® and Wolverine®. Wolverine is also the exclusive footwear licensee of popular brands, including CAT®, Harley-Davidson® and Patagonia®.

Third Consecutive Beat

Earnings per share came in at 70 cents, a 12.9% increase over the same quarter in 2009. This beat the Zacks Consensus Estimate by 3 cents, marking the company's third consecutive positive EPS surprise.

Total revenue increased 11.7% year-over-year as sales were up in each segment. Growth was particularly strong in the Wolverine Footwear division, which saw an impressive 22.7% jump in revenue.

Meanwhile, the overall gross margin was essentially flat at 40.1%. The operating margin expanded, however, from 14.4% to 15.0% as the company was able to leverage its operating expenses. This led to a 16.1% jump in operating profit.

Momentum Continues to Build

Following the strong third quarter, CEO Blake Krueger stated "[t]he momentum in our business continues to build." Management also revised its earnings guidance to a range of $2.04 to $2.08 per share, up from previous guidance of $1.98 to $2.04 per share.

Estimates have been trending slightly higher off the strong quarter. The Zacks Consensus Estimate for 2010 is $2.11, up 19% over 2009 EPS. The 2011 estimate is currently $2.27, equating to 8% growth.

Rewarding Shareholders

Over the last 10 years, WWW has increased its dividend at a compound annual growth rate of 16.8%. It hasn't raised its dividend since early 2008 however.

It has a dividend yield of 1.4%. The company's payout ratio is just 21%, so if the company continues its momentum, expect the dividend to increase.

The company also spent $4.0 million in the quarter repurchasing 158,700 of its shares.

Attractive Valuation

Shares trade at 14.9x forward earnings, in-line with its peer group. Its PEG ratio is an attractive 1.0.

Its price to sales ratio of 1.3 is slightly above its peers at 1.1. This premium is justified considering the company's net margin of 8.1%, which is above the industry average of 6.0%.

Wolverine World Wide, Inc. is headquartered in Rockford, Michigan and has a market cap of $1.5 billion. It is a Zacks #2 Rank (Buy) stock.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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