Cavco Industries To See Stabilizing Backlog And Consistent Retail Demand, Says Analyst

Wedbush analyst Jay McCanless reiterated an Outperform rating on the shares of Cavco Industries, Inc. CVCO and lowered the price target from $390 to $380.

The company reported a 21.7% decline in its second-quarter FY24 revenue to $452 million. EPS for the quarter was $4.76 compared to $8.25 last year.

Cavco's 17% y/y decline for Q2 shipments was 200 basis points lower than the industry change, says the analyst.

The relatively rapid rise in mortgage rates during September and October 2023 was a demand headwind and hence the analyst took a more conservative volume assumption in Q3 FY24 as a result, by trimming the shipment forecast to -10% to -5%.

Similar to Cavco's Q1 FY24 commentary, the retail/dealer community appears to have fixed the inventory issues from earlier this year and are actively ordering again, notes the analyst.

Manufactured home community (MHC) clients remain on the sidelines because the inventory backlog for that channel has not been cleared, notes the analyst.

The analyst has lowered FY24E/FY25E EPS to $19.76/23.82 from $20.05/$24.51 and FY24/FY25 revenue estimates to $1.85/$2.0 billion from $1.9/$2.1 billion. 

Assuming the trend of no widespread pricing pressure from Cavco's competitors continuing through FY24, the analyst raised the average price from $99,000 to $102,000.

When the manufactured home community (MHC) operators return to normal ordering, that may have a noticeable impact for Cavco and the industry since Cavco estimates MHCs are approximately 1/3rd of annual industry demand, notes the analyst.

The lowered price target of $380 represents a 19.2x P/E multiple on FY24E EPS of $19.76, which is within the analyst's FY24 P/E valuation range of 16x to 27x. 

Price Action: CVCO shares are trading higher by 1.55% at $263.14 on the last check Tuesday.