Household Goods Stocks

La-Z-Boy Inc Valuation – Initial Coverage $LZB

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 Undervalued Stocks for the Enterprising Investor – August 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 La-Z-Boy Inc (LZB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): La-Z-Boy Incorporated manufactures, markets, imports, exports, distributes and retails upholstery furniture products. The Company also imports, distributes and retails accessories and casegoods (wood) furniture products. The Company’s segments include the Upholstery segment, the Casegoods segment and the Retail segment. The Company is the producer of reclining chairs and manufacturer/distributor of residential furniture in the United States. The Company sells its products, primarily in the United States and Canada, as well as internationally, to furniture retailers and directly to consumers through stores that it owns and operates. The Company has a network of approximately 340 La-Z-Boy Furniture Galleries stores and over 560 Comfort Studio locations. The Company owns approximately 120 of the La-Z-Boy Furniture Galleries stores. The Company’s other brands include England, Kincaid, American Drew and Hammary.

LZB Chart

LZB data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LZB – August 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 $1,515,647,929 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.60 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 -493.18% Fail
6. Moderate PEmg Ratio PEmg < 20 18.77 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.59 Pass
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 2.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.65
MG Growth Estimate 9.92%
MG Value $46.89
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $23.99
MG Value based on 0% Growth $14.06
Market Implied Growth Rate 5.13%
Current Price $31.05
% of Intrinsic Value 66.22%

La-Z-Boy Incorporated 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 or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns.  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 Undervalued after growing its EPSmg (normalized earnings) from $1 in 2014 to an estimated $1.65 for 2018.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.13% 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 above the price.

At the time of valuation, further research into La-Z-Boy Incorporated revealed the company was trading above its Graham Number of $22.87.  The company pays a dividend of $0.42 per share, for a yield of 1.4%  Its PEmg (price over earnings per share – ModernGraham) was 18.77, which was below the industry average of 23.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.43.

La-Z-Boy Incorporated performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.43
Graham Number $22.87
PEmg 18.77
Current Ratio 2.60
PB Ratio 2.59
Current Dividend $0.42
Dividend Yield 1.35%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2017
Total Current Assets $517,422,000
Total Current Liabilities $198,676,000
Long-Term Debt $296,000
Total Assets $888,855,000
Intangible Assets $92,734,000
Total Liabilities $298,936,000
Shares Outstanding (Diluted Average) 49,284,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.91
Apr2017 $1.73
Apr2016 $1.55
Apr2015 $1.34
Apr2014 $1.02
Apr2013 $0.85
Apr2012 $1.64
Apr2011 $0.45
Apr2010 $0.62
Apr2009 -$2.39
Apr2008 -$0.26
Apr2007 $0.08
Apr2006 -$0.06
Apr2005 $0.71
Apr2004 -$0.11
Apr2003 $0.63
Apr2002 $1.01
Apr2001 $1.13
Apr2000 $1.60
Apr1999 $1.24
Apr1998 $0.93

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.65
Apr2017 $1.45
Apr2016 $1.30
Apr2015 $1.14
Apr2014 $1.00
Apr2013 $0.73
Apr2012 $0.45
Apr2011 -$0.19
Apr2010 -$0.48
Apr2009 -$0.81
Apr2008 $0.01
Apr2007 $0.18
Apr2006 $0.30
Apr2005 $0.54
Apr2004 $0.59
Apr2003 $1.00
Apr2002 $1.19

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.

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