MBUU Stock Study (7-24-23)

I recently did a stock study on Malibu Boats Inc. (MBUU) with a closing price of $57.64. The original study is here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace active lifestyles.

Over the past decade, this medium-size (as of 2022) company has grown sales and earnings at annualized rates of 25.7% and 33.6% [75.6% if the 2014 loss is included], respectively. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’14, ’18, and ’20. PTPM over the decade is higher than peer and industry averages and has increased from 10.8% in ’13 to 17.3% in ’22 with a last-5-year mean of 15.5%.

Over the past five years, ROE is slightly better than peer and industry averages in ranging from 22.9% (’18) to 35.6% (’19) with a mean of 29.9%. Debt-to-Capital is slightly lower than peer and industry averages in declining from 152% (’15) to 19.5% (’22) with a last-5-year mean of 30.6%.

Interest Coverage is 62.1 and Quick Ratio is 0.79. M* rates the company “Standard” for Capital Allocation while Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.3% YOY and 0% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 10.5% growth and 5.1% contraction for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 10.6% growth and 7.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 10.5% YOY and 2.4% growth per year for ’23 and ’22-’24, respectively (7).
• M* gives 2-year annualized ACE of 9.7% along with projecting 8.0% growth for the next five years in an analyst note.

I am forecasting less than both long-term estimates at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 7.7% YOY growth and 3.0% contraction per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects annualized contraction of 2.1% and 0.5% for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects contraction of 12.7% YOY and 3.6% per year for ’24 and ’23-’25, respectively [4, 4, and 1 analyst(s) for ’23, ’24, and ’25].
• YF projects YOY 7.6% growth and 10.9% contraction for ’23 and ’24, respectively (6), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 7.8% growth and 12.4% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 13.4% YOY and 0.5% per year for ’23 and ’22-’24, respectively (8).
• M* projects long-term annualized growth of 9.7%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 9.9%) at 5.0% per year. I am using ’22 EPS of $7.51/share as the initial value rather than ’23 Q3 EPS of $8.23 (annualized).

My Forecast High P/E is 13.0. Excluding 2018 upside outlier of 34.2, high P/E has fallen from 26.0 in ’15 to 11.5 in ’22 with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 13.4. I am forecasting below the latter (only ’22 is lower).

My Forecast Low P/E is 5.0. Since ’15, low P/E has generally trended down from 17.4 in ’15 to 6.4 in ’22 with a last-5-year mean of 10.0. I am projecting below the entire range.

My Low Stock Price Forecast (LSPF) of $37.50 is the default based on $7.51/share initial value. This is 34.9% less than the previous close and 19.7% less than the 52-week low.

These inputs land MBUU in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 16.7%.

PAR (using Forecast Average—not High—P/E) is 8.4%, which is a bit less than I prefer for a medium-size company. If a healthy margin of safety (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 247 studies done in the past 90 days (59 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 8.4%, 14.4, and 7.3. I am lower across the board. Value Line projects a future average annual P/E of 10.0, which is lower than MS (10.9) and higher than me (9.0).

MS high/low EPS is $12.09/$7.79 vs. my $9.58/$7.51 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $77.80 implies a Forecast Low P/E of 5.6 vs. the above-stated 7.3. MS LSPF is 22.6% less than the default value of $7.79/share * 7.3 = $67.21, which results in more conservative zoning. MS LSPF remains 29.2% greater than mine.

MOS in the current study seems robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two metrics I have been monitoring. PEG is 1.3 while Relative Value is 0.52 per M*. The latter suggests the stock to be significantly undervalued.

According to Kim Butcher’s “quick and dirty DCF,” the stock should be priced at 8 * [$12.00 – ($0.00 + $2.60)] = $75.20 (i.e. stock undervalued by 30.5%).

I would look to sail away with shares under $59.00.