Valuation Scorecard: Stock Rating C-Low Neutral (3/6/24)-Caesarstone Ltd (CSTE).

Over the next 6 years, Caesarstone shares will need to reach $8 to achieve average annual stock market performance of 9.0%. Caesarstone’s stock price will need to reach $9 by 2029 to achieve upper quartile performance. What is the market’s view of Caesarstone’s future operating performance as reflected in the current price of $4?

Executive Summary

• Key Caesarstone characteristics: instability, low financial strength, very low profitability, and very low expected growth. A big negative influence on Caesarstone’s valuation is its poor Profitability.
• Very low valuation, lagging shareholder returns. Current valuation levels are very low relative to the Caesarstone Peer Group. Recent market returns have substantially underperformed the Caesarstone Peer Group. Total shareholder returns expected to equal the overall equity market. Based on current investor expectations, Caesarstone shares should reach a level of $7 by 2029 — an 8.9% per year total shareholder return. A 2029 stock price of $8 would reflect median performance and a price of $9 would be required to reach upper quartile performance.
• Caesarstone’s historical growth is slightly below average. Historical growth has been below average relative to the Caesarstone Peer Group and forecasted growth is relatively very low. EPS Growth has been superior. Equity Growth, Asset Growth, and Revenue Growth have lagged. Caesarstone’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity.
• Profitability has been Caesarstone’s biggest valuation weakness. Pretax Margin, Pretax ROA, and Return on Equity are group lagging. These factors have negatively affected market perceptions of Caesarstone. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Caesarstone’s risk profile is neutral. Overall variability has been only average with only average revenue variability, above average E.P.S. variability, Financial Strength is very low and earnings’ expectations are relatively very high. The debt/capital ratio has risen.

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