AMWD Stock Study (6-12-24)

Posted by Mark on July 23, 2024 at 06:31 | Last modified: June 12, 2024 11:05

I recently did a stock study on American Woodmark Corp. (AMWD) with a closing price of $81.38. The previous study is here.

Value Line writes:

     > American Woodmark Corporation manufactures and distributes kitchen
     > cabinets and vanities for the home construction and remodeling
     > markets. The company offers 550 cabinet lines in a wide variety of
     > designs, materials, and finishes, ranging from low to mid-tier
     > prices under the American Woodmark, Simply Woodmark, and other
     > brands. Acquired RSI Home Products, 12/17. Home Depot and Lowe’s
     > accounted for 43% of sales in fiscal 2022.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 10.6% and 9.1%, respectively (FY ends Apr 30; references to year at BI and Value Line incremented to align).

Critical to the analysis is that the latter excludes -$1.79/share in 2022. The historical EPS growth rate is -15.9% with ’22 included. I would reject that based on visual inspection. A closer look at the 10-K reveals a major contributor to the down year is a $65.8M pension settlement:

     > Prior to April 30, 2020, the Company had two non-contributory
     > defined benefit pension plans covering many of the Company’s
     > employees hired prior to April 30, 2012. Effective April 30, 2012,
     > the Company froze all future benefit accruals under the Company’s
     > hourly and salaried defined benefit pension plans. Effective April
     > 30, 2020, these plans were merged into one plan. Effective December
     > 31, 2020 the Plan was terminated in a standard termination and
     > benefits were distributed on December 2, 2021.

“Cost of Sales and Distribution” is also higher in ’21:

     > The decrease in gross profit margin was primarily due to higher
     > material and logistics costs, and increases related to wage and
     > retention programs. This was partially offset by the increase in
     > sales creating leverage of our fixed expenses in our operating
     > platforms.

This $117M impact, for which management may be on the hook, is almost double that of the pension settlement.

I will continue the study with ’22 data excluded.

Even without ’22 EPS, visual inspection is not pristine. Sales are up and mostly straight with a dip in ’24. EPS are down in ’18, ’20, and ’21, which gives somewhat of a rocky appearance.

Over the past decade, PTPM is about even with the industry but lower than peer averages by ranging from 4.4% in ’21 to 10.6% in ’17 with a last-5-year mean of 6.2%. ROE lags industry and peer averages by falling from 15.7% (’15) to 12.6% (’24) with a last-5-year mean of 10.5%: Debt-to-Capital is lower than industry and peer averages by going from 9.1% in ’15 to 58.3% in ’18 then trending down to 35.8% in ’24 for a last-5-year mean of 42.7%.

Per M*, Quick Ratio is 1.1 and Interest Coverage is 17.3. Value Line gives a Financial Strength rating of B+.

With regard to sales growth:

• YF projects YOY 1.5% and 5.2% for ’24 and ’25, respectively (based on 4 analysts).
• Zacks projects YOY 1.5% and 5.0% for ’24 and ’25, respectively (1 analyst).
• Value Line projects 4.5% annualized growth from ’24-’29.
• CFRA projects 1.6% YOY and 3.4% per year for ’25 and ’24-’26, respectively (5).
• M* provides a 2-year ACE of 2.8% per year.

I am forecasting near the bottom of the range at 3.0% per year.

With regard to EPS growth:

• MarketWatch projects 3.5% YOY and 9.3% per year for ’25 and ’24-’26, respectively (based on 4 analysts).
• Nasdaq.com projects 10.2% YOY for ’26 (1 analyst).
• YF projects YOY 4.3% and 15.5% for ’25 and ’26, respectively (5), along with 5-year annualized growth of 32.2%.
• Zacks projects YOY 2.6% contraction and 10.2% growth for ’25 and ’26, respectively (1).
• Value Line projects 11.7% annualized growth from ’24-’29.
• CFRA projects growth of 24.5% YOY and 19.9% per year for ’25 and ’24-’26, respectively (5).

With only two long-term estimates available (mean 22.0%), I am taking an arbitrary 25% haircut off the lower to arrive at my 9.0% per year forecast. Initial value is ’24 EPS of $7.15/share.

My Forecast High P/E is 14.0. Over the past decade, high P/E trends down from 25.5 (’15) to 14.6 (’24) with a last-5-year mean of 20.9 and a last-5-year-mean average P/E of 14.8. I am near the bottom of the range [only ’23 (10.8) is less].

My Forecast Low P/E is 8.0. Over the past decade, low P/E trends down from 11.4 (’15) to 6.8 (’24) with a last-5-year mean of 8.6. I am forecasting near the bottom of the range [only ’24 and ’23 (7.2) are less].

My Low Stock Price Forecast (LSPF) is the default value of $57.20 given initial value from above. This is 29.7% less than the previous closing price and 12.0% less than the 52-week low.

These inputs land AMWD in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 13.6%.

PAR (using Forecast Average—not High—P/E) of 8.3% is less than I seek for a medium-size company. If a healthy 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 17 studies done in the past 90 days (my study and 6 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 3.3%, 12.4%, 16.3, and 9.6, respectively. I am lower across the board. Value Line projects a future average annual P/E of 11.0 that is less than MS (13.0) and equal to mine.

MS high / low EPS are $12.83 / $6.76 versus my $11.00 / $7.15 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $14.85 soars above both.

MS LSPF of $65.20 implies a Forecast Low P/E of 9.6: a perfect match. MS LSPF is 14.0% greater than mine thereby representing more aggressive zoning.

TAR (over 15.0% preferred) is much less than MS 18.4%. Despite the small MS sample size, I believe MOS to be robust due to conservative input selection.

With regard to valuation, PEG is 1.2 per my projected P/E: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit cheap at 0.77.

The stock is up ~40% over the past 12 months per Value Line while remaining in the lower half of the YTD range. If I could just get one more long-term estimate to support solid future EPS growth…

U/D has AMWD a Buy under $81/share while the BI TAR criterion will be satisfied ~$77 given a forecast high price of $154.