Intrinsic value of Cavco Industries - CVCO

Previous Close

$153.55

  Intrinsic Value

$161.61

stock screener

  Rating & Target

hold

+5%

  Value-price divergence*

+60%

Previous close

$153.55

 
Intrinsic value

$161.61

 
Up/down potential

+5%

 
Rating

hold

 
Value-price divergence*

+60%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CVCO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.71
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
Revenue, $m
  774
  866
  963
  1,065
  1,172
  1,284
  1,400
  1,522
  1,648
  1,779
  1,916
  2,058
  2,205
  2,358
  2,517
  2,683
  2,855
  3,035
  3,221
  3,416
  3,618
  3,830
  4,050
  4,280
  4,520
  4,771
  5,033
  5,307
  5,594
  5,894
  6,208
Variable operating expenses, $m
 
  712
  791
  874
  961
  1,052
  1,147
  1,245
  1,348
  1,455
  1,566
  1,675
  1,795
  1,919
  2,049
  2,184
  2,324
  2,470
  2,622
  2,780
  2,945
  3,117
  3,297
  3,484
  3,679
  3,883
  4,097
  4,320
  4,553
  4,797
  5,053
Fixed operating expenses, $m
 
  84
  86
  88
  91
  93
  95
  97
  100
  102
  105
  108
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
Total operating expenses, $m
  717
  796
  877
  962
  1,052
  1,145
  1,242
  1,342
  1,448
  1,557
  1,671
  1,783
  1,905
  2,032
  2,165
  2,303
  2,446
  2,595
  2,750
  2,911
  3,079
  3,255
  3,438
  3,629
  3,827
  4,035
  4,253
  4,480
  4,717
  4,965
  5,225
Operating income, $m
  57
  70
  86
  103
  121
  139
  158
  179
  200
  222
  244
  275
  300
  326
  352
  380
  409
  440
  471
  504
  539
  575
  612
  652
  693
  736
  781
  828
  877
  929
  983
EBITDA, $m
  61
  80
  96
  113
  131
  150
  169
  190
  211
  234
  257
  281
  306
  332
  360
  388
  418
  448
  481
  514
  549
  586
  624
  664
  706
  749
  795
  843
  893
  946
  1,001
Interest expense (income), $m
  3
  3
  4
  5
  6
  8
  9
  11
  12
  14
  16
  18
  19
  21
  23
  25
  28
  30
  32
  35
  37
  40
  43
  45
  48
  52
  55
  58
  62
  66
  70
Earnings before tax, $m
  55
  68
  82
  98
  114
  131
  149
  168
  187
  208
  229
  258
  281
  304
  329
  355
  382
  410
  439
  470
  502
  535
  570
  606
  644
  684
  726
  769
  815
  863
  913
Tax expense, $m
  17
  18
  22
  26
  31
  35
  40
  45
  51
  56
  62
  70
  76
  82
  89
  96
  103
  111
  119
  127
  135
  144
  154
  164
  174
  185
  196
  208
  220
  233
  247
Net income, $m
  38
  49
  60
  71
  83
  96
  109
  123
  137
  152
  167
  188
  205
  222
  240
  259
  279
  299
  321
  343
  366
  391
  416
  442
  470
  499
  530
  562
  595
  630
  667

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  144
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  607
  518
  576
  637
  701
  768
  837
  910
  986
  1,064
  1,146
  1,231
  1,319
  1,410
  1,506
  1,605
  1,708
  1,815
  1,927
  2,043
  2,164
  2,290
  2,422
  2,560
  2,703
  2,854
  3,010
  3,174
  3,346
  3,525
  3,713
Adjusted assets (=assets-cash), $m
  463
  518
  576
  637
  701
  768
  837
  910
  986
  1,064
  1,146
  1,231
  1,319
  1,410
  1,506
  1,605
  1,708
  1,815
  1,927
  2,043
  2,164
  2,290
  2,422
  2,560
  2,703
  2,854
  3,010
  3,174
  3,346
  3,525
  3,713
Revenue / Adjusted assets
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.673
  1.673
  1.671
  1.672
  1.672
  1.672
  1.672
  1.672
  1.671
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
  1.672
Average production assets, $m
  67
  74
  83
  92
  101
  110
  120
  131
  142
  153
  165
  177
  190
  203
  217
  231
  246
  261
  277
  294
  311
  329
  348
  368
  389
  410
  433
  456
  481
  507
  534
Working capital, $m
  217
  88
  98
  109
  120
  131
  143
  155
  168
  181
  195
  210
  225
  241
  257
  274
  291
  310
  329
  348
  369
  391
  413
  437
  461
  487
  513
  541
  571
  601
  633
Total debt, $m
  58
  77
  103
  130
  158
  188
  219
  252
  286
  321
  357
  395
  434
  475
  518
  562
  608
  656
  706
  758
  812
  869
  928
  989
  1,053
  1,121
  1,191
  1,264
  1,341
  1,421
  1,505
Total liabilities, $m
  213
  232
  258
  285
  313
  343
  374
  407
  441
  476
  512
  550
  589
  630
  673
  717
  763
  811
  861
  913
  967
  1,024
  1,083
  1,144
  1,208
  1,276
  1,346
  1,419
  1,496
  1,576
  1,660
Total equity, $m
  394
  286
  319
  352
  388
  425
  463
  503
  545
  588
  634
  681
  729
  780
  833
  887
  944
  1,004
  1,065
  1,130
  1,197
  1,267
  1,339
  1,416
  1,495
  1,578
  1,665
  1,755
  1,850
  1,949
  2,053
Total liabilities and equity, $m
  607
  518
  577
  637
  701
  768
  837
  910
  986
  1,064
  1,146
  1,231
  1,318
  1,410
  1,506
  1,604
  1,707
  1,815
  1,926
  2,043
  2,164
  2,291
  2,422
  2,560
  2,703
  2,854
  3,011
  3,174
  3,346
  3,525
  3,713
Debt-to-equity ratio
  0.147
  0.270
  0.320
  0.370
  0.410
  0.440
  0.470
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.720
  0.730
  0.730
Adjusted equity ratio
  0.540
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  38
  49
  60
  71
  83
  96
  109
  123
  137
  152
  167
  188
  205
  222
  240
  259
  279
  299
  321
  343
  366
  391
  416
  442
  470
  499
  530
  562
  595
  630
  667
Depreciation, amort., depletion, $m
  4
  9
  10
  10
  10
  11
  11
  11
  12
  12
  12
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Funds from operations, $m
  56
  59
  70
  81
  94
  107
  120
  134
  148
  164
  179
  194
  211
  229
  248
  267
  287
  308
  330
  353
  377
  401
  428
  455
  483
  513
  544
  577
  611
  647
  685
Change in working capital, $m
  11
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  26
  27
  28
  29
  31
  32
Cash from operations, $m
  45
  49
  60
  71
  83
  95
  108
  122
  136
  150
  166
  180
  196
  213
  231
  250
  269
  290
  311
  333
  356
  380
  405
  431
  459
  487
  517
  549
  582
  616
  652
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
New CAPEX, $m
  -5
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
Cash from investing activities, $m
  -7
  -10
  -10
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
Free cash flow, $m
  38
  39
  49
  60
  71
  82
  94
  107
  120
  134
  149
  162
  178
  194
  211
  229
  247
  266
  286
  307
  329
  351
  375
  400
  426
  453
  481
  511
  542
  574
  609
Issuance/(repayment) of debt, $m
  -4
  25
  26
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
Issuance/(repurchase) of shares, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -3
  25
  26
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
Total cash flow (excl. dividends), $m
  35
  64
  75
  87
  99
  112
  125
  140
  154
  169
  185
  200
  217
  235
  253
  273
  293
  314
  336
  359
  383
  408
  434
  461
  490
  520
  551
  584
  619
  655
  693
Retained Cash Flow (-), $m
  -41
  -30
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -91
  -95
  -99
  -104
Prev. year cash balance distribution, $m
 
  138
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  171
  43
  53
  64
  75
  87
  99
  112
  126
  140
  153
  168
  184
  201
  218
  236
  255
  274
  295
  316
  338
  361
  385
  411
  437
  465
  493
  524
  555
  589
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  164
  39
  46
  53
  58
  63
  67
  70
  72
  73
  73
  72
  70
  67
  64
  60
  55
  51
  45
  40
  35
  30
  25
  21
  17
  14
  11
  8
  6
  4
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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.

FINANCIAL RATIOS  of  Cavco Industries (CVCO)

Valuation Ratios
P/E Ratio 36.3
Price to Sales 1.8
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 30.7
Price to Free Cash Flow 34.5
Growth Rates
Sales Growth Rate 8.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
Financial Strength
Quick Ratio 24
Current Ratio 0.2
LT Debt to Equity 13.2%
Total Debt to Equity 14.7%
Interest Coverage 19
Management Effectiveness
Return On Assets 6.9%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.5%
Return On Equity 10.2%
Return On Equity - 3 Yr. Avg. 8.9%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 20.4%
Gross Margin - 3 Yr. Avg. 21%
EBITDA Margin 8%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 6.9%
Pre-Tax Margin 7.1%
Pre-Tax Margin - 3 Yr. Avg. 6.6%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 30.9%
Eff/ Tax Rate - 3 Yr. Avg. 33.4%
Payout Ratio 0%

CVCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVCO stock intrinsic value calculation we used $774 million for the last fiscal year's total revenue generated by Cavco Industries. The default revenue input number comes from 2017 income statement of Cavco Industries. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CVCO stock valuation model: a) initial revenue growth rate of 11.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CVCO is calculated based on our internal credit rating of Cavco Industries, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cavco Industries.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CVCO stock the variable cost ratio is equal to 82.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $82 million in the base year in the intrinsic value calculation for CVCO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.9% for Cavco Industries.

Corporate tax rate of 27% is the nominal tax rate for Cavco Industries. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CVCO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CVCO are equal to 8.6%.

Life of production assets of 34.1 years is the average useful life of capital assets used in Cavco Industries operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CVCO is equal to 10.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $394 million for Cavco Industries - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 9.183 million for Cavco Industries is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cavco Industries at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Cavco Industries Gets IBD Stock Rating Upgrade   [Sep-06-17 03:00AM  Investor's Business Daily]
▶ Cavco posts 1Q profit   [Aug-07-17 10:48PM  Associated Press]
▶ Cavco Industries Gets A Composite Rating Upgrade   [Jul-03-17 11:02AM  Investor's Business Daily]
▶ Company News for June 14, 2017   [10:28AM  Zacks]
▶ Cavco posts 4Q profit   [Jun-12-17 04:18PM  Associated Press]
▶ Cavco posts 3Q profit   [Feb-06-17 04:42PM  Associated Press]
▶ Is Cavco Industries, Inc. (CVCO) A Good Stock To Buy?   [Dec-14-16 08:07AM  at Insider Monkey]
Financial statements of CVCO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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