The Street Upgrades Stock Advice on Cavco
The stock of Cavco Industries Inc. has been upgraded by TheStreet Ratings from "hold" to "buy."
Phoenix-based Cavco is a builder of manufactured housing and park models.
According to a news release, the company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. "We feel these strengths outweigh the fact that the company has had sub par growth in net income," the firm noted.
Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 11.9%. Since the same quarter one year prior, revenues slightly increased by 9.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.47, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems.
The Street stated further:
"Cavco's earnings per share declined by 16.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, Cavco reported lower earnings of $0.71 versus $2.20 in the prior year. This year, the market expects an improvement in earnings ($1.05 versus $0.71).
"Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
"The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Household Durables industry average. The net income has decreased by 15.8% when compared to the same quarter one year ago, dropping from $1.65 million to $1.39 million."