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Cavco Manufactures Gains from Manufactured Homes

10/28/2019 5:00 am EST

Focus: REAL ESTATE

Douglas Gerlach

President, ICLUBcentral, Inc.

Manufactured homes today are a far cry from the stereotypical mobile homes of 20 years ago, notes Douglas Gerlach, growth stock expert and editor of the industry-leading advisory service, SmallCap Informer.

Cavco Industries (CVCO) is one of the largest producers of manufactured homes in the United States, and a leading designer and builder of “systems-built structures” that include modular homes, commercial buildings, park model RVs, and vacation cabins.

The firm build some of the most recognized brand names in the industry: Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Lexington, and Destiny

Interestingly, the processes and systems Cavco utilizes to build homes in their factories are inherently more efficient and environmentally beneficial than on-site construction methods.

In addition, Cavco can build homes with substantial utilization of renewable materials and high-tech energy saving features, and that are designed for the use of solar and wind power.

Since 2011, Cavco has seen revenues grow at an average annual rate of 12.7%. In the same period, EPS have grown at 303% on average each year. There is great demand for Cavco’s homes. In 2018, manufactured housing accounted for 57% of all new homes sold under $200,000 and 84% of all new homes sold under $150,000.

Two of every three manufactured homes are in rural areas. Approximately 9 million households with 22 million people currently live in manufactured homes that make up 9% of nation’s single family housing stock.

While analysts on Wall Street project EPS growth as high as 30% over the next five years, we have calculated a conservative 12% rate of growth of revenues and EPS through 2023. The stock has consistently traded at a P/E between the high twenties and the midteens; we have selected a high P/E of 28 which provides a calculated future high price of $374.

On the downside, prices calculated at 80% of the current price and using the price-variant quotient method are very similar, for a future low price of around $146. From the current price, the upside-to-downside ratio is 5.2-to-1 and the annual total return is 15.4%.

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