Furniture Maker Haverty Offers a Deep Value Play
Furniture Maker Haverty Offers a Deep Value Play
HVT Q3 2016 sales came out at $$211.7 million, which is close to our expectations
HVT’s revenue curve has a strong seasonality and we believe the Q4 2016 revenue would be higher than the same quarter last year
HVT’s stock is trading near a 52-week low, but has a price target of $23 per share, which offers investors 30.68% upside potential
For over a century, Haverty Furniture Companies Inc (NYSE:HVT) has been retailing specialty residential furniture and household accessories to the American market. Their operation is mostly concentrated around the Midwest and Southern states, where they have around 120 stores that serves customers in 20 states. Haverty Furniture Companies Inc is also known for offering bedding products such as mattress.
Besides offering premium furniture, Haverty Furniture Companies Inc is also involved in offering financing to customers via an internal credit plan. Besides, they also act as a third party financing company to consumers.
As of October 12, 2016, Haverty Furniture Companies Inc had a market capitalization of around $372.13 million and employed 3,596 people to run its operations.
Review of Recent Financial Performance
Figure 1: Haverty Furniture Companies Inc’s Revenue Curve Has a Strong Seasonality
Over the last five years, Haverty Furniture Companies Inc’s quarterly revenue has grown from around $150 million to $215 million in Q4 2015, representing a 43.33% increase. However, they have a strong seasonality factor in their sales. It appears that their sales go down during the first two quarters of the year, and picks up in the two quarters in the year. It is the fourth quarter of the year that has consistently outperformed on a year-over-year basis for the last five years.
If the trend continues, Haverty Furniture Companies Inc’s revenue should go above $215 million in Q4 2016.
Figure 2: Haverty Furniture Companies Inc EBITDA Has Been Chaotic Over the Last Five Years
While Haverty Furniture Companies Inc has managed to maintain a level of predictability in top line, their bottom line in terms of EBITDA has been chaotic. In Q4 2014, Haverty Furniture Companies Inc’s EBIDTA fell below $2.50 million, which has gone up to around $23 million a year later in Q4 2015. In Q3 2016, they managed to post a mere $14.59 million EBIDTA.
This chaotic nature of their EBIDTA makes it rather difficult to predict their quarterly earnings per share.
Figure 3: Haverty Furniture Companies Inc Maintained around 9% ROE ((TTM)) in 2016
Although Haverty Furniture Companies Inc’s return on equity ((TTM)) reached around 12% at the end of 2013, it has since fallen to around 3% in 2015. However, as the sales picked up in the last quarter of 2015, the ROE also jumped back up around 10%. So far in 2016, their ROE ((TTM)) has remained close to 9%.
Figure 4: Haverty Furniture Companies Inc Stock Price Has Declined by 43.4% Since January 2014
Regardless of continuous year-over-year revenue growth in the last five years, since January 2014, Haverty Furniture Companies Inc’s stock price has gone down from around $31.25 per share and currently trading at $17.60 per share, which represents a 43.4% decline.
Impact of Q3 2016 Sales
On October 7, 2016, Haverty Furniture Companies Inc released its Q3 2016 sales figure, which came out at $211.7 million, a mere 0.8% increase compared to the $209.9 million sales in Q3 2015.
As we mentioned above, Haverty Furniture Companies Inc’s revenue curve has a high level of seasonality and we were expecting a boost in sales. But, year-over-year, this increase has remained insignificant.
As a result, on October 10, 2016, Raymond James analyst Budd Bugatch downgraded their stock from “Strong Buy” to “Market Perform.” Since the stock was downgraded by Raymond James, Haverty Furniture Companies Inc’s stock price has gone down by around 9% and reached its 52-week low of $16.57 per share.
As the stock price of Haverty Furniture Companies Inc has remained bearish since the start of 2014, secondary investors had to rely on the quarterly dividend to justify their investment, which by the way, has remained regular. However, the annualized dividend payout of Haverty Furniture Companies Inc is currently only $0.48 per share, which translates into a dividend yield of 2.72%, which is not that bad under the current economic circumstances.
We believe that Haverty Furniture Companies Inc management will manage to push their Q4 2014 revenue above last year’s Q4 revenue of $215 million, because the Q3 2016 sales has already reached near $211 million. It will likely have a positive impact on their bottom line as well.
Hence, while the downgrade from Raymond James was justified, we believe the current consensus price target of $23 per share is still achievable. Based on the current market price of $17.60 per share, this price target offers secondary investors around 30.68% upside potential over the next 12-month period.