CVCO Stock Study (6-8-23)

I recently did a stock study on Cavco Industries Inc. (CVCO) with a closing price of $288.54.

M* writes:

     > Cavco Industries Inc. designs and produces factory-built homes under
     > the Cavco Homes, Fleetwood Homes, and Palm Harbor Homes brands.
     > It also produces modular homes, park model homes, and vacation
     > cabins, as well as commercial structures, among others. The company
     > operates principally in two segments: Factory-built housing, which
     > includes wholesale and retail systems-built housing operations and
     > financial services, which includes manufactured housing consumer
     > finance and insurance. Cavco received most of its revenues from
     > the Factory-built housing segment.

Over the last decade, this medium-size company has grown sales and earnings at annualized rates of 13.4% and 34.9%, respectively. The latter includes a 158% YOY spike in ’21—much of which is due to acquisition of The Commodore Corp [I did not realize this when doing the original SSG in March 2023; it gives me more confidence in the sustainability of earnings]. Lines are up, mostly straight, and parallel. PTPM has trailed industry averages but leads peers while increasing from 5.2% in ’13 to 14.3% in ’22 with a last-5-year mean of 10.8%.

Over the last decade, ROE has increased from 6.0% in ’13 to 24.5% in ’22 with a last-5-year mean of 17.2. This trails peer and industry averages until ’21 when the latter two turn negative. Debt-to-Capital has been far below peer and industry averages, declining from 19.4% in ’13 to 2.2% in ’22 with a last-5-year mean of 3.9%. Interest Coverage is 338, Quick Ratio is 1.49, and the company gets a B+ Financial Strength rating from Value Line.

With regard to sales growth:

• YF projects YOY 2.0% contraction and 8.8% growth for ’23 and ’24, respectively (based on 2 analysts).
• Zacks projects YOY 1.5% contraction and 14.2% growth for ’23 and ’24, respectively (1 analyst).
• CFRA projects 5.5% YOY contraction and 1.1% growth per year for ’23 and ’22-’24, respectively (3).

These short-term projections are not very helpful for a long-term forecast with ’23 expected to be down. Instead, I am slashing the historical growth rate in half and using 6.0% to be conservative.

With regard to EPS growth:

• MarketWatch projects 10.6% YOY contraction and 1.3% growth per year for ’23 and ’22-’24 (based on 3 analysts).
• Nasdaq.com projects 14.9% YOY growth for ’25 (1 analyst).
• Seeking Alpha projects 4-year annualized growth of 22.5%.
• YF projects YOY 11.6% contraction and 23.9% growth for ’23 and ’24, respectively (2), along with 5-year annualized growth of 30.0%.
• Zacks projects YOY 1.5% contraction and 14.2% growth for ’23 and ’24, respectively (1).
• Value Line projects 6.1% annualized growth from ’22-’24.
• CFRA projects 13.7% YOY contraction and 0.5% contraction per year for ’23 and ’22-’24, respectively (2).

Two long-term estimates [Value Line report is a stub] are not much to go on [CNN Business gives a 404 error at the time of this report]. Neither can I find any corporate guidance published [which would probably be factored into analyst estimates anyway]. I am forecasting 50% below the low estimate at 11.0%. This is roughly one-third of the historical EPS growth rate, which seems conservative enough for me.

My Forecast High P/E is 15.5. Over the last decade, high P/E has trended down from 43.7 (’13) to 11.8 (’22) with a last-5-year mean of 24.0. The last-5-year-mean average P/E is 17.6. I am forecasting below the latter. Only ’22 and ’21 (15.3) are lower.

My Forecast Low P/E is 6.5. Over the last decade, low P/E has trended down from 20.8 (’13) to 6.7 (’22) with a last-5-year mean of 11.3. I am projecting conservatively below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $175.00. This is 39.3% less than the previous closing price and 2.5% less than the 52-week low.

These inputs land CVCO in the BUY zone with a U/D ratio of 3.7. Total Annualized Return (TAR) is 19.5%.

PAR (using Forecast Average—not High—P/E) is 11.6%, which is decent for a company of this size. If a robust margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 53 studies over the past 90 days (21 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 11.8%, 9.8%, 23.1, and 13.2, respectively. I am lower on all but EPS growth. Per Value Line, my forecast average P/E (11.0 vs. MS 17.7) is lower than each of the last 10 years except for ’22 (8.9).

MS high and low EPS are $38.30/share and $19.77/share compared to my $45.41 and $26.93. 14 of the studies have low EPS under $9.00, which suggests these studies used pre-acquisition data (no longer relevant). My high EPS is higher due to a higher EPS growth rate and because of a higher initial value (post-acquisition data).

MS LSPF of $179.50 is only 2.6% greater than mine: very much in the neighborhood. That does imply an MS low P/E of 9.1, however, in contrast to the above-stated 13.2. It’s also 31.2% below the $19.77 * 13.2 = $260.96 default value. At least this disconnect makes for a lower-risk bias [pulling the BUY zone lower].

Overall, I feel the current study has a robust MOS. The BUY zone extends to $307/share vs. MS $358.

The only thing that gives me pause is the stock being so close to its 52-week high. Depending on personal preference, I could opt to buy now or wait for an arbitrary pullback (e.g. 5%). The risk of waiting is that I may never get it, but that’s one benefit of doing several other stock studies!