Haverty Furniture Company Extends Gains On Solid Results
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Haverty Furniture Company, What’s Not To Like
We’ve been bullish on the furniture industry and Haverty Furniture Company (NYSE: HVT) for a long time, since well before the pandemic. The trade war with China (remember that?) had the industry on the ropes because it is (or was) so heavily dependant on Chinese manufacturing. When the pandemic struck the industry was already reorienting its supply chain with a focus on domestic production so it was not only trading at a cheap valuation but preparing for what was to come. When the pandemic struck the bottom fell out of the entire market, spurred stay-at-home trends, and accelerated the post-trade-war rebound that was so unfortunately postponed. Now shares of Haverty are trading 350% above the spring 2020 lows and still heading higher.
Haverty Furniture Companies Has Ultra-Comfy Quarter
Haverty Furniture Company reported a sequential downtick in revenue but you know what, it does not matter. The $5 million decline in revenue is only worth about 200 basis points sequentially, the more important comparison is against the prior year. The $236.5 million in reported revenue is up 31.8% from last year and beat the consensus estimate by 1800 basis points. That’s 1800 basis points, more growth than most companies will report this quarter in total. And that is against a tough comp, Haverty’s revenue was still growing in the Q1 2020 period so don’t think this an easy beat.
On a comp basis, same-store sales increased by 11.5% with a notable increase in written sales. Written sales, an indication of future business, are up 10% sequentially and 24% from last year. Moving down the report, the company is still experiencing margin expansion despite upward cost-pressure in materials, staffing, and freight. The gross margin improved by 160 basis points due to internal efficiencies, mix, and leveraging of fixed expenses. On the bottom line, the $1.04 in GAAP EPS not only grew by $0.95 over last year but it also beat the consensus by $0.63.
The company did not give any guidance but did offer some positive commentary. While the COVID-inspired nesting trends are seen abating tailwinds in the housing sector, economic growth, and low-interest rates are favorable to the business.
Haverty Is Still A Value, And A Good Yield
One of the reasons we’ve like Haverty is the yield-to-value. The stock is still only trading about 17X the consensus compared to the S&P 500’s 22X earnings and we know the consensus to be too low. Assuming that revenue and earnings are only stable over the next three quarters this company could easily bring $4.00 per share which is nearly double the current consensus. In that light, the stock is trading about 10X its earnings and we still think the $4.00 estimate is low. The company is seasonal and has the three strongest quarters of the year still ahead of it.
As for the yield, the stock is yielding about 2.0% even now while trading at fresh all-time highs and it has a history of distribution increases and special dividends that get us really excited. The company has been raising the payout at a 15% CAGR for the last 8 years and is not afraid to pay a special when the cash is there. Based on the revenue outlook, current earnings, and fortress balance sheet this company could easily give another special this year. The last special payment came in the calendar 4th quarter of 2020 and worth $2.00 or about 4.4% in yield. Not too shabby.
The Technical Outlook: Haverty’s Is Moving Higher
Shares of Haverty Furniture are up 10% in the wake of the Q1 release and moving higher. The stock may not be in a multiple expansion but the consensus figures are so far off it is in a major melt-up. Assuming that 17X earnings is the right valuation and that $4.00 is a good estimate for full-year results, this stock should be trading closer to the $68 or $20 of upside, almost another 50% gains. And that’s without the dividend. If this stock moves up to trade in line with the S&P 500 you can add another $20 in upside.
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