NAPA Stock Study (4-16-24)

I recently did a stock study on Duckhorn Portfolio Inc. (NAPA) with $8.23 closing price. Previous studies are here and here.

Value Line writes:

     > Duckhorn Portfolio, Inc. is an American producer and purveyor of wines
     > from California and Washington state. The company operates approx.
     > 900 vineyards, produces 900,000 cases per year. Major brands include
     > Duckhorn, Decoy, Goldeneye, Paraduxx, Migration, Canvasback,
     > Calera, Kosta Browne, Greenwing and Postmark. In the U.S., sells
     > wines through wholesale distributors or directly to consumers in
     > wineries and through a wine club membership.

This small-size company went public in 2021 and has financials available since 2019. Over that time, Duckhorn has grown sales and EPS at 14.4% and 33.4% per year, respectively. Lines are mostly up, straight, and parallel.

Over the past five years, PTPM leads (trails) peer (industry) averages while increasing from 12.4% (’19) to 23.4% (’23) with a last-5-year mean of 19.3%. Debt-to-Capital is down from 40.1% (’19) to 21.2% (’23) with a last-5-year mean of 28.8%.

ROE is lower than industry averages and about even with peers with a last-3-year mean of 7.3%.

Current Ratio is 6.8, Quick Ratio is 0.9, and Interest Coverage is 6.9. Value Line assigns a B+ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 0.1% and 11.1% for ’24 and ’25, respectively (based on 8 analysts).
• Zacks projects YOY 1.0% and 11.6% for ’24 and ’25, respectively (3 analysts).
• Value Line projects 6.8% annualized growth from ’23-’27.
• CFRA projects 0.3% YOY and 4.0% per year for ’24 and ’23-’25, respectively (6).
• M* gives a 2-year ACE of 1.8% annualized growth.

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

• MarketWatch projects 6.0% and 7.6% per year for ’23-’25 and ’23-’26, respectively (based on 9 analysts).
• Nasdaq.com projects 12.7% and 12.0% per year for ’24-’26 and ’24-’27 [3, 2, and 1 analyst(s) for ’24, ’26, and ’27].
• Seeking Alpha projects 4-year annualized growth of 3.4%.
• YF projects YOY 7.5% contraction and 11.3% growth for ’24 and ’25, respectively (8), along with 5-year annualized growth of 5.0%.
• Zacks projects YOY 6.0% contraction and 7.9% growth for ’24 and ’25, respectively (3), along with 5-year annualized growth of 2.0%.
• Value Line projects 6.1% annualized growth from ’23-’27.
• CFRA projects 6.7% YOY and 7.2% per year for ’24 and ’23-’25, respectively (7).

I am forecasting conservatively below the long-term-estimate range (mean of four: 4.1%) at 2.0% and using 2023 EPS of $0.60/share as the initial value.

My Forecast High P/E is 25.0. High P/E over the last three years (only data available) is 47.2, 48.6, and 32.3 (mean 42.7). The last-3-year-mean average P/E is 35.5. I am forecasting below the range.

My Forecast Low P/E is 11.0. Low P/E over the last three years (only data available) is 31.1, 33.1, and 20.7 (mean 28.3). I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $6.30 is default based on $0.60/share initial value. This is 23.4% less than the previous close and 22.2% less than the 52-week low.

These inputs land NAPA in the BUY zone with a U/D ratio of 4.3. Total Annualized Return (TAR) is 15.0%.

PAR (using Forecast Average—not High—P/E) of 7.7% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I would normally look to Member Sentiment except only two studies besides my own have been done over the past 90 days. Mine does have the lowest projected sales and EPS growth along with the lowest Forecast High and Low P/E. Mine also has the lowest TAR. My Forecast High P/E is equal to Value Line’s.

My forecast high EPS is $0.77/share versus Value Line’s $0.88/share.

My study appears to have a solid MOS except for a questionable Forecast High P/E. At 25, I’ve gone below the [brief 3-year historical] range and matched Value Line’s projection. This is a 73% increase from current, though: with what catalyst? As the Value Line analyst writes, “the stock lacks a reliable nexus for its valuation at this juncture.”

Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very low at 0.41.

The stock is trading near its 52-week low and has been in a downtrend since the start of 2022. Value Line’s prospects on stock price [turnaround] are bright and its low projection of $17/share is just above my $16.60. These prospects don’t seem to align with anemic growth projections. ROE seems stuck around 9%, which doesn’t impress me either.

Despite the lackluster growth forecast, NAPA is a BUY under $9.50 and meets my 15% TAR criterion right now.