MBUU Stock Study (5-1-23)

I recently did a stock study on Malibu Boats Inc. (MBUU) with a closing price of $56.75.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace active lifestyles.

Over the last 10 years, this medium-size (as of 2022) company has grown sales and earnings at annualized rates of 25.7% and 33.6% (75.6% if ’14 is included when the company posted a loss), respectively. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’14, ’18, and ’20. PTPM over the decade is higher than peer and industry averages and has increased from 10.8% in ’13 to 17.3% in ’22. The last-5-year average is 15.5%.

ROE over the last five years is slightly better than peer and industry averages—ranging from 22.9% (’18) to 35.6% (’19) with a mean of 29.9%. Debt-to-Capital is slightly lower than peer and industry averages—declining from 152% in ’15 to 19.5% in ’22 with a last-5-year average of 30.6%. Interest Coverage is 62 and Quick Ratio is 0.8. M* rates the company Standard for Capital Allocation while Value Line assigns a B++ rating for Financial Strength.

I forecast long-term annualized sales growth of 6% based on the following:

• CNN Business projects 8.3% YOY and 4.1% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 7.5% growth and 2.5% contraction for ’23 and ’24, respectively (8).
• Zacks projects YOY 7.8% growth and 3.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 7.4% YOY and 2.4% growth per year for ’23 and ’22-’24, respectively (6).
• M* gives 2-year annualized ACE of 6.6% along with projecting 8.0% growth for the next five years in an analyst note.

I am forecasting less than both long-term estimates.

I forecast long-term annualized EPS growth of 4% based on the following:

• CNN Business projects 3.3% YOY growth and 1.4% contraction per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects 0.5% contraction per year and 1.1% growth per year for ’22-’24 and ’22-’25 (9 analysts).
• Nasdaq.com projects 4.8% YOY contraction for ’24 (4).
• YF projects YOY 3.4% growth and 5.4% contraction for ’23 and ’24, respectively (8), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 4.4% growth and 4.4% contraction for ’23 and ’24, respectively (4).
• Value Line projects 3.2% annualized growth from ’22-’27.
• CFRA projects growth of 7.2% YOY and 1.2% growth per year for ’23 and ’22-’24, respectively (9).
• M* projects long-term growth of 10.1%.

I am forecasting toward the bottom of the long-term range (mean of 4 estimates: 9.6%). Despite the first two quarters of growth for ’23 ending with $8.23/share, I am projecting from the last annual EPS ($7.51/share).

My Forecast High P/E is 13. Excluding the upside outlier in ’18 (34.2), high P/E has trended down from 26.0 (’15) to 11.5 (’22) with a last-5-year average of 16.9. I am forecasting toward the bottom of the range (only ’22 value is lower).

My Forecast Low P/E is 5. From ’15 to ’22, low P/E has trended down from 17.4 to 6.4 with a last-5-year average of 10.0. I am projecting below the entire range and [as mentioned above] using ’22 EPS of $7.51 rather than Q2 2023.

My Low Stock Price Forecast (LSPF) is the default value of $37.50. This is 33.4% less than the previous close and 19.0% less than the 52-week low.

These inputs land MBUU in the BUY zone with an U/D ratio of 3.2. The Total Annualized Return (TAR) is 15.9%.

PAR (using Forecast Average—not High—P/E) is 7.7%, which is a bit lower than I would like for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 233 studies done in the past 90 days (62 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 10.0%, 14.8, and 7.8. I am lower across the board. Value Line projects a future average annual P/E of 10.0, which is lower than MS (11.3) and higher than me (9.0).

With regard to other data, MS high and low EPS are $12.66/share and $7.59/share compared to my $9.14 and $7.51. My high EPS is lower due to a lower forecast growth rate and my low EPS would be higher had I included the most recent quarters of growth [not doing so bolsters MOS]. MS LSPF is $45.80, which is 22.1% higher than mine and much lower than the default value of $7.59 * 7.8 = $59.20. MOS seems robust in the current study.

I would look to sail away with shares under $57.00.

As a housekeeping note, this was my second consecutive quarter studying MBUU. Quarterly reviews will become commonplace for many stocks. No changes had to be made for anything in the history, corporate description, or Forecast High/Low P/E sections. This will probably be the case most of the time unless the current study begins a new FY. In that case, a new annual data point may replace the oldest in the 10-year range thereby creating a new distribution.