Cavco Industries Stock: Strong Earnings in Challenging Market Conditions

Alternative House Building Small Cap Cavco Industries, Inc (Nasdaq: CVCO) has outperformed EPS forecasts for the last four consecutive quarters, showing optimism about declining cancellation rates and an increase in requests for quotes.Currently ranked As the second-highest homebuilder stock on Seeking Alpha Quant evaluation of 4.81, 52.07% year-over-year earnings growth, EPS of $6.66, and a low FWD price earnings margin of 10.74. It has brought investors a return of 35.33% over the past 6 months.

The housing market faces significant challenges, but CVCO is not invulnerable either, given that its backlog fell by 34% in Q3 2023. Longer term, as more people and communities open up, CVCO will likely play a key role in solving the affordable housing crisis.To quality factory production or modular housing solution. It has increased the number of federal and state incentives, eased zoning restrictions, and improved financing options for nontraditional home construction. CVCO is a longtime leader in building innovative factory built housing solutions that are far cheaper, faster and more sustainable for a wide variety of businesses and individuals. Therefore, I remain bullish on equities.

overview

Inside me previous article, I give a detailed overview of what the business does. CVCO aims to provide high-quality, affordable factory-built homes and his RVs to individuals and businesses, and offers additional financial and insurance services. With the average home retail price of $108,000 (not including land costs), there is strong selling at $365,000 for a traditional site-built home.

Manufactured modular homes have been around for years, but there is still a lot of uncertainty, negative sentiment, and confusion about these types of homes. , in every home meet the minimum A property standard known as HUD Codes that continues to be developed and improved. modular housing Advances in technological capabilities built into homes often exceed the standards of traditional homes.

Financial by segment

You can see that CVCO revenue is broken down into factory-built housing and financial services. In the third quarter of 2023, all segments saw year-over-year growth, except for a decline in insurance commissions received from third-party insurers to $887,000. HUD Code Home is the bulk of the business, with sales of $399 million in Q3 2023.

growth driver

CVCO has the financial strength to allow the company to invest and make strategic acquisitions, a long history of innovation such as increasing manufacturing facilities, customizable homes with new products and technologies, and an established brand. , there are several growth catalysts such as expanding the customer base.recently released new website Connect your customers to 1,500 retailers and communities. Additionally, there is an imminent shortage of affordable housing in the United States, with experts projecting that number to be in the millions. This allows the organization to promote the benefits of factory-built housing, improve zoning restrictions, and increase knowledge about various housing solutions.

Financial results and evaluation

CVCO has experienced significant revenue and profit growth over the past three years, with annual EPS increasing 53% and EBIT margin increasing from 9.9% to 14% over the past 12 months. Net revenue increased 16% year-over-year to $501 million in the third quarter of 2023, and net income increased 29% to $76 million. This was due to higher average selling prices and a 26.4% improvement in gross margin, rather than higher unit sales. As seen across the housing industry, the CVCO backlog has decreased dramatically. It declined 34% to $427 million in Q3 2023.

CVCO’s balance sheet is very strong, with total cash of $392.76 million, total liabilities of $26.69 million, a current ratio of 2.99, a quick ratio of 1.75, and sufficient short-term liquidity to service short-term debt. It shows that there is a It has a positive free-lever cash flow of 147.88 million TTM.This has resulted in consistent capital allocation, investment in manufacturing facilities, year-to-date share repurchases of $73 million and $39 million in cash. Enabled strategic acquisitions for growth such as Solitaire Homes.

Looking at CVCO’s ratings according to Seeking Alpha’s Quant ranking, the stock ranks as the second highest homebuilder. With a market capitalization of $2.52 billion, FWD has a price/earnings multiple of 10.89, demonstrating double-digit growth and profitability. The stock has outperformed the SP500 Index over the short and long term.

final thoughts

CVCO is in a strong financial position with a strong balance sheet and strong cash flow. One of the biggest concerns is 34% reduction in backlog Due to unfavorable housing market conditions. However, in the third quarter 2023 earnings call, management was optimistic about an increase in requests for quotes and a decline in cancellation rates. CVCO has ramped up manufacturing facilities and launched his website connecting potential customers to his 1,500 retailers and communities. moreover, States that encourage factory manufacturing Housing and CVCO are still well below the one-year share price target estimate of $358.33. Therefore, I remain bullish on this stock.