12-month forward PE
As of January 16, 2018, Nordstrom (JWN) was trading at a 12-month forward PE (price-to-earnings) ratio of 15.7x. Its forward valuation multiple has risen 9.2% since the announcement of its fiscal 3Q17 results in November 2017. As we saw in the previous part of this series, the upscale department store chain raised its sales and earnings guidance after its holiday sales performance.
Valuation compared to peers
Nordstrom is trading at a higher valuation multiple than its department store peers Macy’s (M) and Kohl’s (KSS). As of January 16, 2018, they were trading at 12-month forward PE multiples of 8.8x and 14.5x, respectively.
These major department stores are trading at a lower valuation multiple than the S&P 500 Index, which has a forward PE multiple of 19.4x.
The 12-month forward PE multiple is computed by dividing the company’s current stock price by an estimate of its EPS (earnings per share) for the next 12 months. The forward PE differs among companies based on several factors such as their business models, growth expectations, and risk-return profiles.
For fiscal 2017, which ends on February 3, 2018, analysts expect Nordstrom’s sales to rise 4.2% to $15.4 billion. Its adjusted EPS is forecast to fall 3.6% to $2.93.
Currently, analysts expect sales to rise 1.6% and adjusted EPS to rise 6.8% in fiscal 2018. The company’s bottom line is expected to improve in fiscal 2018 since its expenses will likely moderate.
Let’s see the recent changes in analysts’ recommendations and price targets for Nordstrom stock in the next part of this series.