Cavco Industries Inc Valuation – Initial Coverage $CVCO
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cavco Industries Inc (CVCO) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Cavco Industries, Inc. designs and produces factory-built homes. The Company operates through 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. Its factory-built homes are primarily distributed through a network of independent and the Company-owned retailers, planned community operators and residential developers. It markets its products under the brands, including Cavco Homes, Fleetwood Homes, Palm Harbor Homes, Fairmont Homes and Chariot Eagle. It is also a builder of park model recreational vehicle (RVs), vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand. It also produces a range of Cape Cod-style homes and multi-family units, and builds commercial modular structures, including apartment buildings, schools and housing for the United States military troops.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of CVCO – March 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $1,072,563,103 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.66 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 1858.00% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 38.82 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.77 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.66 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.25 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.01 |
| MG Growth Estimate | 15.00% |
| MG Value | $115.78 |
| Opinion | Fairly Valued |
| MG Grade | C |
| MG Value based on 3% Growth | $43.61 |
| MG Value based on 0% Growth | $25.56 |
| Market Implied Growth Rate | 15.16% |
| Current Price | $116.75 |
| % of Intrinsic Value | 100.84% |
Cavco Industries, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.84 in 2013 to an estimated $3.01 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 15.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Cavco Industries, Inc. revealed the company was trading above its Graham Number of $62. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 38.82, which was above the industry average of 28.49. Finally, the company was trading above its Net Current Asset Value (NCAV) of $14.99.
Cavco Industries, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $14.99 |
| Graham Number | $62.00 |
| PEmg | 38.82 |
| Current Ratio | 2.66 |
| PB Ratio | 2.77 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2016 |
| Total Current Assets | $334,567,000 |
| Total Current Liabilities | $125,766,000 |
| Long-Term Debt | $51,659,000 |
| Total Assets | $582,074,000 |
| Intangible Assets | $80,113,000 |
| Total Liabilities | $198,095,000 |
| Shares Outstanding (Diluted Average) | 9,103,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.00 |
| Mar2016 | $3.15 |
| Mar2015 | $2.64 |
| Mar2014 | $1.94 |
| Mar2013 | $0.71 |
| Mar2012 | $2.19 |
| Mar2011 | $0.41 |
| Mar2010 | -$0.52 |
| Mar2009 | $0.07 |
| Mar2008 | $0.95 |
| Mar2007 | $1.74 |
| Mar2006 | $2.23 |
| Mar2005 | $1.54 |
| Mar2004 | $0.97 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.01 |
| Mar2016 | $2.38 |
| Mar2015 | $1.86 |
| Mar2014 | $1.29 |
| Mar2013 | $0.84 |
| Mar2012 | $0.81 |
| Mar2011 | $0.25 |
| Mar2010 | $0.42 |
| Mar2009 | $1.02 |
| Mar2008 | $1.50 |
| Mar2007 | $1.61 |
| Mar2006 | $1.35 |
| Mar2005 | $0.77 |
| Mar2004 | $0.32 |
Recommended Reading:
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
