Is Now the Time to Buy Kingfisher?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Kingfisher  (LSE: KGF  ) to determine whether you should consider buying the shares at 276 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Yr. EPS growth

Projected P/E

PEG

Yield

3-Yr. Dividend Growth

Dividend Cover

Kingfisher

276 pence

53%

12.4

N/A

3.4%

60%

2.8

The consensus analyst estimate for next year's earnings per share is 22.3 pence (down 8%) and dividend per share is 9.2 pence (up 5%).

Trading on a projected P/E of 12.4, Kingfisher appears cheaper than its peers in the General Retailers sector, which are currently trading on an average P/E of around 13.3. Unfortunately, Kingfisher's P/E and negative growth rate gives a negative PEG ratio, which cannot help my analysis.

Offering a 3.4% yield, the dividend is slightly more than the General Retailers sector average of 3%. However, Kingfisher has a three-year compounded dividend growth rate of 60%, implying the payout could continue to outpace the group's peers.

The dividend is around 2.8 times covered, giving Kingfisher plenty room for further payout growth. It should be noted that, even though Kingfisher operates in the hard-hit home improvement sector, the company has not seen earnings per share fall since 2008. Indeed, next year the dividend is forecast to return to just under the same amount that was paid during 2007.

Strong historic growth, but what about the future?
Kingfisher's third-quarter trading statement saw the company announce a 6% profit decline. I can also see from the statement that most of Kingfisher's losses came from lower sales within its main U.K. and French markets. I believe the company also suffered from unfavorable exchange rates between the U.K. and Europe.

However, the company is benefiting from geographical diversification. While sales in the U.K. and Europe were down, sales in Russia were up 40% and sales in China grew 3%. Kingfisher's Screwfix brand was the group's strongest performer, with brand sales up 11%.

I also believe there are some weaknesses overhanging this company. With most of Kingfisher's operations supplying the housing market, the company is subject to well-known macroeconomic headwinds -- a depressed housing market and squeezed consumer incomes.

However, the group is undertaking various self-help initiatives. In particular, a "Creating the Leader" restructuring program is focused on turning the firm into a world-leading home improvement specialist.

Anyway, taking into account the company's strong performance over the past few years, worldwide diversification and an above-average, well-covered yield, I believe now looks to be a good time to buy Kingfisher at 276 pence.

More FTSE opportunities
As well as Kingfisher, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super-Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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