BUSINESS
Haverty Furniture Companies, Inc. operates as a specialty retailer of residential furniture and accessories in the United States. The company offers furniture merchandise under the Havertys brand name. It also provides custom upholstery products and eclectic looks; and mattress product lines under the Sealy, Stearns and Foster, Tempur-Pedic, and Serta names, as well as private label Skye name. The company sells home furnishings through its retail stores, as well as through its Website. As of December 31, 2021, it operated 121 showrooms in 16 states in the Southern and Midwestern regions. Haverty Furniture Companies, Inc. was founded in 1885 and is headquartered in Atlanta, Georgia.
INVESTMENT RATING
HVT is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Haverty Furniture has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Haverty Furniture has a slightly positive Appreciation Score of 62 and a good Power Rating of 74, resulting in the Positive Value Trend Rating.
Haverty Furniture’s stock is selling well below targeted value. The current stock price of $35.09 compares to targeted value 12 months forward of $63.
This moderately high appreciation potential results in an appreciation score of 62 (only 38% of the universe has greater appreciation potential.)
Haverty Furniture has a Power Rating of 74. (HVT’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 26% of companies in the universe.)
Contributing to this good Power Rating: recent price action has been favorable. Offsetting factors are the Furniture Stores comparison group is in a slightly weakened position currently; and the trend in HVT’s earnings estimates has been unfavorable in recent months.
INVESTMENT PROFILE
HVT’s financial strength is average. Financial strength rating is 58.
Relative to the S&P 500 Composite, Haverty Furniture Cos Inc has neutral Growth/Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that HVT is higher risk. High historical growth is a positive for HVT. High stock price volatility is a relative weakness for HVT. HVT’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. HVT has unusually low market capitalization.
CURRENT SIGNALS
Haverty Furniture’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Haverty Furniture’s current technical position is very strong. The stock price is in a 3.7 month up move. The stock has appreciated 39.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent meaningful negative changes in investment behavior have impacted Haverty Furniture Cos Inc (NYSE: HVT): negative upside/downside volume developed.
Recent slight positive changes in fundamentals have benefitted Haverty Furniture Cos Inc (NYSE: HVT): the stock’s power rating rose above 70.
In light of this new information we are reviewing our current Overall Rating of B. This review will be completed in the next several days.
Haverty Furniture Cos Inc (NYSE: HVT) has reported earnings for its fourth fiscal quarter (ending December 31) of $0.92 versus $1.47 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $3.45 versus $5.41 for the same period a year ago.
Haverty Furniture Cos Inc (NYSE: HVT) stock declined slightly by -0.2% on 2/21/24. The stock closed at $35.09. Trading volume in this decline was normal. The stock has been exceptionally strong relative to the market over the last nine months but has declined -3.7% during the last week.
CASH FLOW
In 2022, Haverty Furniture experienced a significant decline in cash of -$42.9 million (-25%). Sources of cash were lower than uses. Cash generated from 2022 EBITDA totaled +$134.9 million. Non-operating sources contributed +$1.7 million (+1% of EBITDA). Cash taxes consumed -$30.1 million (-22% of EBITDA). Re-investment in the business amounted to -$84.2 million (-62% of EBITDA). On a net basis, debt investors removed -$9.2 million (-7% of EBITDA) while equity investors withdrew -$55.9 million (-41% of EBITDA).
Haverty Furniture’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Haverty Furniture Peer Group. In most years, Haverty Furniture was in the top quartile. Currently, Haverty Furniture is substantially above median at +1% of EBITDA (+$1.7 million).
Haverty Furniture’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Haverty Furniture Peer Group. In most years, Haverty Furniture was in the third quartile and second quartile. Currently, Haverty Furniture is substantially below median at -22% of EBITDA (-$30.1 million).
Haverty Furniture’s Business Re-investment, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Haverty Furniture Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Haverty Furniture was in the second quartile and top quartile. Currently, Haverty Furniture is slightly above median at -62% of EBITDA (-$84.2 million).
Haverty Furniture’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Haverty Furniture Peer Group. (Since 2019 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Haverty Furniture was in the top quartile and second quartile. Currently, Haverty Furniture is slightly above median at -7% of EBITDA (-$9.2 million).
Haverty Furniture’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Haverty Furniture Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, Haverty Furniture was in the top quartile and lower quartile. Currently, Haverty Furniture is lower quartile at -41% of EBITDA (-$55.9 million).
Haverty Furniture’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Haverty Furniture Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Haverty Furniture was in the top quartile and third quartile. Currently, Haverty Furniture is substantially below median at -32% of EBITDA (-$42.9 million).
Haverty Furniture’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Haverty Furniture Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, Haverty Furniture was in the top quartile and second quartile. Currently, Haverty Furniture is at the upper quartile at +12%.
PROFITABILITY
Haverty Furniture’s return on equity has improved very significantly since 2013. The current level of 20.6% is 1.90X the low for the period and is -12.1% from the high.
Haverty Furniture’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of Haverty Furniture’s assets declined over the full period 2013-2023: asset turnover has suffered a strong overall downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend even as it experienced a very sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Haverty Furniture’s return on equity is upper quartile (20.6%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is upper quartile (12.8%) reflecting asset turnover that is below median (1.38X) and upper quartile pretax margin (9.3%).
Tax “keep” rate (income tax management) is at the upper quartile (75.0%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is slightly above median (2.14X).
GROWTH RATES
There are no significant differences between Haverty Furniture’s longer term growth and growth in recent years.
Haverty Furniture’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 6.1% per year.
Total asset growth has been 9.1% per year.
Annual E.P.S. growth has been 21.1% per year.
Equity growth has been 2.9% per year.
Haverty Furniture’s consensus growth rate forecast (average of Wall Street analysts) is 12.0% — in line with the average of the historical growth measures.
Relative to the Haverty Furniture Peer Group, Haverty Furniture’s historical growth measures are erratic. E.P.S. growth (21.1%) has been upper quartile. Total asset growth (9.1%) has been at the upper quartile. Revenue growth (6.1%) has been substantially above median. Equity growth (2.9%) has been lower quartile.
Consensus growth forecast (12.0%) is at median.
PRICE HISTORY
Over the full time period, Haverty Furniture’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Haverty Furniture’s stock price rose +48%; relative to the market, this was a -53% loss. Significant price moves during the period: 1) April, 2021 – June, 2022: -50%; 2) July, 2020 – April, 2021: +227%; and 3) February, 2019 – March, 2020: -51%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 4.0% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 4.0% is slightly above median relative to Haverty Furniture Cos Inc Peer Group.
Current 5-year total return performance of 19.6% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 19.6% relative to S&P 500 Composite, Haverty Furniture’s total return performance is upper quartile relative to Haverty Furniture Cos Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, HVT’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/equity ratio, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/earnings ratio. The lowest factor, ratio of enterprise value/revenue, is lower quartile.
Relative to Haverty Furniture Peer Group, HVT’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is near the upper quartile. Ratio of enterprise value/revenue is above median. Price/equity ratio is at the upper quartile. Price/earnings ratio is lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
Haverty Furniture has a very large value gap compared to the median. For HVT to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 0.80X to 0.65X. If HVT’s ratio of enterprise value/revenue were to fall to 0.65X, its stock price would be lower by $-9 to $26.
For HVT to achieve upper quartile valuation relative to the Haverty Furniture Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.80X to 0.98X. If HVT’s ratio of enterprise value/revenue were to rise to 0.98X, its stock price would increase by $11 from the current level of $35.
VALUE TARGETS
HVT is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Haverty Furniture’s current Price Target of $63 represents a +78% change from the current price of $35.09.
This moderately high appreciation potential results in an appreciation score of 62 (only 38% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 62, the high Power Rating of 74 contributes to an Value Trend Rating of B.
Haverty Furniture’s current Price Target is $63 (-6% from the 2022 Target of $66 but +78% from the 02/21/24 price of $35.09). This plateau in the Target is the result of a +20% increase in the equity base and a -21% decrease in the price/equity multiple. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 17.2% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2017 low of 8%.
PTR’s growth forecast is 13.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2020 low of 2%.
PTR’s cost of equity forecast is 11.4% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2014 and 2022. The current forecast is well above the 2014 low of 5.9%.
At Haverty Furniture’s current price of $35.09, investors are placing a positive value of $7 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 27.5% versus a cost of equity of 15.6%.
PTR’s 2024 Price Target of $63 is based on these forecasts and reflects an estimated value of existing assets of $35 and a value of future investments of $28.
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