NAPA Stock Study (10-10-23)

I recently did a stock study on Duckhorn Portfolio Inc. (NAPA) with a closing price of $9.87. The original study is here.

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 14.4% and 33.4% per year, respectively. Lines are mostly up, straight, and parallel.

Over the past five years, PTPM leads (trails) peer (industry) averages while increasing from 12.4% (’19) to 23.4% (’23) with a last-5-year mean of 19.3%. Debt-to-Capital is down from 40.1% (’19) to 21.2% (’23) with a last-5-year mean of 28.8%.

ROE is lower than industry averages and about even with peers with a last-3-year mean of 7.3%.

Current Ratio is 5.2, Quick Ratio is 0.7, and Interest Coverage is 9.1. Value Line assigns a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.2% YOY and 7.5% per year for ’24 and ’23-’25 (based on 8 analysts; FY ends Jul 31).
• YF projects YOY 5.4% and 7.4% for ’24 and ’25, respectively (8 analysts).
• Zacks projects YOY 5.5% and 7.2% for ’24 and ’25, respectively (2).
• Value Line projects 5.5% annualized growth from ’23-’27.
• CFRA projects 5.5% YOY and 6.5% per year for ’24 and ’23-’25, respectively (6).
• M* gives a 2-year ACE of 7.2% annualized growth.

I am forecasting conservatively below the range at 4.0% per year.

With regard to EPS growth:

• CNN Business projects 6.0% YOY and 7.2% per year for ’24 and ’23-’25, respectively (based on 8 analysts), along with 5-year annualized growth of 7.8%.
• MarketWatch projects 7.4% and 6.7% per year for ’23-’25 and ’23-’26, respectively (8 analysts).
• Nasdaq.com projects 10.9% YOY and 11.1% per year for ’25 and ’24-’26 [2, 2, and 1 analyst(s) for ’24, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 7.6%.
• YF projects YOY 1.5% and 10.3% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 7.5%.
• Zacks projects YOY 3.0% and 8.7% for ’24 and ’25, respectively (2), along with 5-year annualized growth of 7.4%.
• Value Line projects 6.1% annualized growth from ’23-’27.
• CFRA projects 13.3% YOY and 11.8% per year for ’23 and ’22-’24, respectively (7).

I am forecasting conservatively below the long-term-estimate range (mean of five: 7.3%) at 5.0% per year and using 2023 EPS of $0.60/share as the initial value.

My Forecast High P/E is 30.0. High P/E over the last three years (only data available) is 47.2, 48.6, and 32.3 (mean 42.7). The last-3-year-mean average P/E is 35.5. I am forecasting below the range.

My Forecast Low P/E is 12.0. Low P/E over the last three years (only data available) is 31.1, 33.1, and 20.7 (mean 28.3). I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $7.20 is default based on $0.60/share initial value. This is 27.1% less than the previous close and 22.6% less than the 52-week low.

These inputs land NAPA in the BUY zone with a U/D ratio of 4.9. Total Annualized Return (TAR) is 18.5%.

PAR (using Forecast Average—not High—P/E) of 10.4% 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 three studies (my study excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.0%, 7.0%, 41.7, and 23.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 25.0 is lower than MS (32.4) and higher than mine (21.0).

MS high / low EPS are $0.76 / $0.50 versus my $0.77 / $0.60 (per share). My range is probably higher due to a higher initial value (the recently-released 2023 EPS). Value Line’s high EPS is $0.85: highest of the three.

MS LSPF of $11.70 (invalid on today’s date) implies a Forecast Low P/E of 23.4: greater than the above-stated 23.0. MS LSPF is 1.7% greater than the default $0.50/share * 23.0 = $11.50, which is also invalid on today’s date. MS LSPF is 62.5% greater than mine. The small sample size is not helping MS here as one study with questionable judgment (e.g. about one week ago) can substantially affect the average.

My TAR (over 15.0% preferred) is less than the 19.7% from MS. While I cannot use MS as a valid comparison due to the tiny sample size, I think MOS seems robust in the current study. My growth rates are less than analyst estimates and my P/E range is lower than brief history.

I track a few different [usually conflicting] valuation metrics. PEG is 2.0 and 3.1 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very low at 0.5.

NAPA is a BUY under $11 and TAR meets my 15% criterion right now. The stock is down nearly 25% since July (also explains MS LSPF), but fundamentals don’t seem affected. The biggest knock against this company may be its short data history.