MBUU Stock Study (4-23-24)

Posted by Mark on April 18, 2024 at 11:52 | Last modified: April 23, 2024 12:47

I recently did a stock study on Malibu Boats Inc. (MBUU, $34.07). Previous studies are here, here, and here.

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 the active outdoor lifestyle.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 26.6% and 30.5% [86.0% including 2014 EPS of -$0.42], respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 (FY ends Jun 30) and EPS declines in ’18, ’20, and ’23. PTPM is higher than peer and industry averages, ranging from 10.2% in ’23 (excluding the loss from ’14) to 18.0% in ’18 with a last-5-year mean of 13.9%.

Over the past five years, ROE is slightly better than peer and industry averages despite falling from 35.6% in ’19 to 16.7% in ’23 with a mean of 28.6%. Debt-to-Capital is lower than peer and industry averages by falling from 35.7% in ’19 to 0.4% in ’23 with a last-5-year mean of 21.7%.

Interest Coverage is 29.1 and Quick Ratio is 0.60. M* gives a “Standard” for Capital Allocation while Value Line assigns a B+ rating for Financial Strength. M* categorizes the company with a “Narrow” economic moat.

With regard to sales growth:

• YF projects YOY 35.7% contraction and 8.6% growth for ’24 and ’25, respectively (based on 8 analysts).
• Zacks projects YOY 32.4% contraction and 7.1% growth for ’24 and ’25, respectively (4 analysts).
• Value Line projects 3.7% annualized contraction from ’23-’28.
• CFRA projects contraction of 35.7% YOY and 16.4% per year for ’24 and ’23-’25, respectively (7).
• M* gives 2-year annualized ACE of 16.4% contraction and projects growth of 7.0% per year from ’25-’33 (analyst note).

I am forecasting zero growth: less than the mean of both long-term estimates.

With regard to earnings growth:

• MarketWatch projects contraction of 29.6% YOY and 24.6% per year for ’24 and ’23-’25 (based on 8 analysts).
• Nasdaq.com projects 46.3% YOY growth for ’25 (3 analysts).
• YF projects YOY 69.2% contraction and 59.1% growth for ’24 and ’25, respectively (7), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 70.5% contraction and 45.8% growth for ’24 and ’25, respectively (3).
• Value Line projects 6.7% annualized contraction from ’23-’28.
• CFRA projects contraction of 44.5% YOY and 7.6% per year for ’24 and ’23-’25, respectively (8).
• M* projects long-term annualized growth of 8.9%.

I have asked for clarification about the M* long-term EPS growth projection. While SSGPlus states this to be 8.9%, the “forecast” box defaults to 4%. Interestingly, long-term EPS calculated from 2023 EPS with a 4.0% growth rate is about equal to that calculated from Q2 2024 ($3.12/share annualized) with a 14.2% growth rate. I wonder if YF gets 15.0% this way.

The three long-term estimates have a range of 21.7% (suggesting high uncertainty) and mean of 5.7%. I am forecasting zero growth and using ’23 EPS of $5.06/share as the initial value.

My Forecast High P/E is 11.0. Since 2015, high P/E falls from 26.0 (34.2 in ’18 excluded) to 14.0 (’23) with a last-5-year mean of 16.3. The last-5-year-mean average P/E is 12.2. I am forecasting below the range [lowest is 11.5 in ’22].

My Forecast Low P/E is 5.0. Since 2015, low P/E generally trends down from 17.4 to 9.2 (’23) with a last-5-year mean of 8.1. I am forecasting below the range [lowest is 6.1 in ’20].

My Low Stock Price Forecast (LSPF) of $25.30 is default based on $5.06/share initial value. This is 25.7% less than the previous close and 25.1% less than the 52-week low.

These inputs land MBUU in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 3.5%. 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 47 studies (18 outliers including mine 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 3.0%, 8.9%, 13.9, and 8.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (11.0) and higher than mine (8.0).

MS high / low EPS are $6.37 / $3.12 versus my $5.06 / $5.06 (per share). Value Line’s high EPS is $6.50, which makes mine lowest of the three. My forecast EPS [average] is higher than the MS range (mean $4.75/share), however.

MS LSPF of $26.50 implies a Forecast Low P/E of 8.5: higher than the above-stated 8.0. MS LSPF is 6.2% more than the default $3.12/share * 8.0 = $24.96 resulting in more aggressive zoning. MS LSPF is also 4.7% greater than mine.

My TAR (over 15.0% preferred) is less than the 13.5% from MS. MOS seems robust in the current study.

Relative Value [(current P/E) / 5-year-mean average P/E] per M* is a bit low at 0.9.

Analyst commentary on MBUU remains positive despite an unfavorable macroeconomic backdrop. Decreased demand for luxury goods is a current reality, and both Value Line and M* imply corporate execution is not to blame. Despite some confusion over M* long-term EPS forecast (one of only three such estimates available), I am discounting the growth forecast to zero and still landing close to the BUY zone. I’d still like a bit more in terms of upside surprises to justify a higher TAR.

MBUU is a BUY under $32. With a forecast high price of $55.70, TAR should meet my 15% criterion just under $28/share.