You Could Call This Stock a 'Shoe' Thing

Caleres (CAL) is a name few investors are aware of. With a little more information, however, they find they know it well. It's located near where almost everyone lives.

Caleres is the new name for Brown Shoe, remember Buster Brown from your youth? The company distributes six of the top 25 brands of women's shoes through Famous Footwear, Naturalizer and other specialty stores. Men's shoes represent 24% of sales and children's wear is about 8%. Accessories are 7% of revenues.

The company is on a roll. From 2010 through 2019, earnings per share, or EPS, surged by over 147%. Every year since 2012 has performed equal to or better than the previous one. Fiscal 2019, which ends Feb. 1, 2020, is expected to set a new all-time record, at $2.40 per share.

The stock has done well, but recent tariff-talk knocked the shares down from an August 2018 peak of $41.10 to an August 2019 nadir of $14.30. That insane over-reaction didn't last long. As of Oct. 21, CAL had partially recovered to about $22.

Those brave enough to have bought the panic low are already ahead by more than 53%.

Caleres is still bargain-priced, as its recent quote is up only about half as much as long-term fundamentals suggest it should be.

Earnings predictability is well above average. CAL's balance sheet is more than adequate. Its current yield was a well-covered 1.30% at $21.49. The stock's relatively volatile nature makes it a good trading candidate.

From 2010 through 2018, CAL averaged about 14.4-times current earnings. As of Oct. 20, its price-to-earnings, or P/E, was just 9-times times this year's and less than 8-times fiscal 2020's projected EPS. Those are the lowest valuations on this fine company since the spring of 2010.

Buyers back then were delighted as their holdings skyrocketed from $8.20 to $33.80 over the next three years or so.

All four of CAL's "should have sold" moments (red-starred below) reflected well above normal P/Es along with historically sub-par yields. 

A simple regression-to-the-mean movement could easily send CAL back up to near $39 by the end of fiscal 2020.

Long-term prospects appear excellent. Value Line expects EPS to reach $3.55 within five years and to see a sustainable multiple of 15-times. That suggests a three- to five-year target price range of $45 to $65 is quite rational.

Traders with shorter time frames should be attracted to CAL. Yahoo Finance calls the shares undervalued. It sees $29.80 as a 12-month goal. Achieving that level would translate to a one-year, greater than 35% gain plus dividends.

Morningstar enigmatically rates Caleres as "Neutral." That rating seems out of whack with Morningstar's own present-day fair value estimate for CAL of $30.57 per share. Getting back to that price would be worth more than 42% to buyers at its Oct. 20 quote.

Note, too, that the shares traded as high as $37.82 less than one year ago. With record results on tap for both this year and next it doesn't seem far-fetched to exceed that old peak.

A quick glance at the detailed company data above shows that CAL gave investors a chance to exit between $32 and $41 during each of the calendar years 2014 through 2019 year-to-date.

The bankruptcy and closure of Payless Shoes this year dinged this year's results as customers snapped up going-out-of-business merchandise at big discounts. The absence of that previous major competitor should have a positive effect going forward.

Previous painful sell-offs during 2008-2009 and 2010-2011 proved to be great chances to make hundreds of percent gains in short periods of time. CAL rallied from $2 to $20 from March of 2009 to April of 2010. It surged from $5.90 in September of 2011 to $33.70 by December of 2014.

It's not too late to get on board for the continuation of this recovery.

At the time of publication, Price was long on CAL shares, short CAL options.