NAPA Stock Study (7-12-23)

Posted by Mark on September 11, 2023 at 06:28 | Last modified: July 12, 2023 09:59

I recently did a stock study on Duckhorn Portfolio Inc. (NAPA) with a closing price of $12.59.

Value Line writes:

     > The Duckhorn Portfolio, Inc. produces and sells wines in North America.
     > It offers wines under a portfolio of brands, including Duckhorn
     > Vineyards, Decoy, Goldeneye, Paraduxx, Migration, Canvasback, Calera,
     > Kosta Browne, Greenwing, and Postmark. The company sells wines to
     > distributors, and directly to retail accounts and consumers. The
     > company was formerly known as Mallard Intermediate, Inc. and changed
     > its name to The Duckhorn Portfolio, Inc. in February 2021. The Duckhorn
     > Portfolio, Inc. was founded in 1976 and is headquartered in Saint
     > Helena, California. The Duckhorn Portfolio, Inc. operates as a
     > subsidiary of Mallard Holding Company, Llc.

This small-size company went public in 2021 and has financials available since 2019. Over that time, Duckhorn has grown sales and EPS at 16.4% and 42.6% per year, respectively. Lines are somewhat up, straight, and parallel.

Over the past four years, PTPM trails the industry but leads peer averages while increasing from 12.4% in ’19 to 22.2% in ’22 (last-4-year mean: 18.3%). Debt-to-Capital has fallen from 40.1% in ’19 to 22.2% in ’22 (last-4-year mean: 30.6%).

ROE averages a mediocre 7.3% over the last two years. I almost feel the limited track record of data for this company is enough to relegate it to a speculative [smaller] position size at best.

Quick Ratio is 1.0, Interest Coverage is 9.1, and Value Line assigns a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.1% YOY and 7.9% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 8.2% and 7.5% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 8.3% and 7.7% for ’23 and ’24, respectively (2).
• Value Line projects 6.1% annualized growth from ’22-’27.
• CFRA projects 8.1% YOY and 7.9% per year for ’23 and ’22-’24, respectively (6).
• M* gives a 2-year ACE of 7.7% annualized growth.

I am forecasting conservatively below the range at 6.0%.

With regard to EPS growth:

• CNN Business projects 6.5% YOY and 7.0% per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized growth of 7.0%.
• MarketWatch projects 7.0% and 7.5% per year for ’22-’24 and ’22-’25, respectively (7 analysts).
• Nasdaq.com projects 8.2% YOY and 8.6% per year for ’24 and ’23-’25 [2, 2, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 7.4%.
• YF projects YOY 4.8% and 7.7% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 8.1%.
• Zacks projects YOY 4.8% and 7.7% for ’23 and ’24, respectively (3), along with 5-year annualized growth of 6.6%.
• Value Line projects 6.5% annualized growth from ’22-’27.
• CFRA projects 26.9% YOY and 16.8% per year for ’23 and ’22-’24, respectively (6).

I am forecasting conservatively below the long-term-estimate range (mean of five: 7.1%) at 6.0% and using 2023 Q3 EPS of $0.50/share (annualized) as the initial value rather than ’22 EPS of $0.52.

My Forecast High P/E is 35.0. High P/E over the last two years (only data available) is 47.2 and 48.6. The last-two-year-mean average P/E is 40.0. I am forecasting below the range.

My Forecast Low P/E is 17.0. Low P/E over the last two years (only data available) is 31.1 and 33.1. I am forecasting below.

My Low Stock Price Forecast (LSPF) is the default $8.50 based on $0.50/share initial value. This is 32.5% less than the previous close, which is also the 52-week low.

These inputs land NAPA in the HOLD zone with a U/D ratio of 2.5. Total Annualized Return (TAR) is 12.9%.

PAR (using Forecast Average—not High—P/E) of 6.4% is less than I seek for a small-size company. If a healthy 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 6 studies over the past 90 days (my study and 2 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.7%, 5.8%, 42.5, and 27.1, respectively. I am lower on all except EPS growth (6.0%), but I can’t read too much into such a small sample size. Value Line projects an average annual P/E of 25.0, which is lower than MS (34.8) and just lower than mine (26.0).

MS high/low EPS is $0.67/$0.49 vs. my $0.67/$0.50 (per share). This may be the closest agreement I have seen thus far.

MS LSPF of $12.10 implies a Forecast Low P/E of 24.7 vs. the above-stated 27.1. MS LSPF is 8.9% less than the default value of $0.49/share * 27.1 = $13.28, which results in more conservative zoning. MS LSPF remains 42.4% greater than mine.

Once again, I can’t draw conclusions from the small MS sample size.

Based on future annual average P/E and Value Line’s high EPS of $0.85, MOS in the current study seems to be moderate.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG is 2.97 per Zacks while Relative Value is 0.64 per M* data. These suggest the stock to be overvalued and undervalued, respectively.

I would look to re-evaluate NAPA under $11.50/share.