MBUU Stock Study (10-23-23)

I recently did a stock study on Malibu Boats Inc. (MBUU, $50.00). Previous studies are here and 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 the active outdoor lifestyle.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 26.6% and 30.5% [86.0% if the 2014 loss is included], respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 (FY ends Jun 30) and EPS declines in ’18, ’20, and ’23. PTPM is higher than peer and industry averages, ranging from 10.2% in ’23 (excluding the loss from ’14) to 18.0% in ’18 with a last-5-year mean of 13.9%.

Over the past five years, ROE is slightly better than peer and industry averages despite falling from 35.6% in ’19 to 16.7% in ’23 with a mean of 28.6%. Debt-to-Capital is lower than peer and industry averages by falling from 35.7% in ’19 to 0.4% in ’23 with a last-5-year mean of 21.7%.

Interest Coverage is 48.8 and Quick Ratio is 0.63. M* rates the company “Standard” for Capital Allocation while Value Line assigns a B+ rating (down from B++ last quarter) for Financial Strength. The company currently has zero long-term debt.

With regard to sales growth:

• CNN Business projects contraction of 14.3% YOY and 3.6% per year for ’24 and ’23-’25 (based on 7 analysts).
• YF projects YOY 16.7% contraction and 6.4% growth for ’24 and ’25, respectively (8 analysts).
• Zacks projects YOY 16.8% contraction and 4.6% growth for ’24 and ’25, respectively (4).
• Value Line projects 0.2% annualized growth from ’23-’27.
• CFRA projects contraction of 16.6% YOY and 5.9% per year for ’24 and ’23-’25, respectively (8).
• M* gives 2-year annualized ACE of 3.9% contraction and projects growth of 5.0%/year x5 years (analyst note).

I am forecasting less than both long-term estimates at 0%.

With regard to EPS growth:

• CNN Business projects contraction of 19.0% YOY and 8.7% per year for ’24 and ’23-’25, respectively (based on 7 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects contraction of 29.9% YOY and 11.1% per year for ’24 and ’23-’25, respectively (8 analysts).
• Nasdaq.com projects 11.3% YOY growth for ’25 (4).
• YF projects YOY 34.4% contraction and 14.3% growth for ’24 and ’25, respectively (8), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 33.3% contraction and 10.8% growth for ’24 and ’25, respectively (4).
• Value Line projects 2.5% annualized contraction from ’23-’27.
• CFRA projects growth of 19.2% YOY and 16.7% per year for ’24 and ’23-’25, respectively (7).
• M* projects long-term annualized growth of 5.8%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 7.1%). I will use ’23 EPS of $5.06/share as the initial value.

My Forecast High P/E is 12.0. Since 2015, high P/E falls from 26.0 (34.2 in ’18 excluded) to 14.0 (’23) with a last-5-year mean of 16.3. The last-5-year-mean average P/E is 12.2. I am forecasting below the latter [only ’22 is lower (11.5)].

My Forecast Low P/E is 7.0. Since 2015, low P/E generally trends down from 17.4 to 9.2 (’23) with a last-5-year mean of 8.1. I am forecasting toward the bottom of the range [only 6.1 (’20) and 6.4 (’22) are lower].

My Low Stock Price Forecast (LSPF) is $35.40: default based on $5.06/share initial value. This is 29.2% less than the previous close and 24.0% less than the 52-week low.

These inputs land MBUU in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.1%.

PAR (using Forecast Average—not High—P/E) is 3.2%, which is less than the current yield on T-bills. 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 196 studies (my study and 29 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.0%, 8.9%, 14.0, and 7.6, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (10.8) and higher than mine (9.5).

MS high / low EPS are $8.82 / $5.06 versus my $6.16 / $5.06 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $8.30. I am lowest of the three.

MS LSPF of $38.20 implies a Forecast Low P/E of 7.5, which is consistent with above. MS LSPF is 7.9% greater than mine thereby implying more aggressive zoning.

My TAR (over 15.0% preferred) is much less than the 20.2% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG per my projected P/E is overvalued at 2.4. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slightly undervalued at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 8.0 * [$10.05 – ($0.00 + $2.60)] = $59.60, which suggests the stock to be 15.9% undervalued.

MBUU is a BUY under $45. With a forecast high price near $74, TAR should meet my 15% criterion around $37/share.