Valuation Scorecard: Stock Rating A-Highest (3/7/24)-American Woodmark Corp (AMWD).

To achieve average annual stock market performance of 9.0% over the next 6 years, American Woodmark shares will need to reach $161. American Woodmark’s stock price will need to reach $190 by 2029 to achieve upper quartile performance. As reflected at the current price of $96, what future American Woodmark operating performance is the market anticipating?

Executive Summary

• Key American Woodmark characteristics: high expected growth, very high profitability, high financial strength, and high stability. A big positive influence on American Woodmark’s valuation is its superior Risk Profile.
• Average valuation, leading shareholder returns. Current valuation levels are average relative to the American Woodmark Peer Group. Recent market returns have significantly outperformed the American Woodmark Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, American Woodmark shares should reach a level of $187 by 2029 — an 11.7% per year total shareholder return. A 2029 stock price of $161 would reflect median performance and a price of $190 would be required to reach upper quartile performance.
• Historical growth has been average relative to the American Woodmark Peer Group and forecasted growth is relatively very high. American Woodmark’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.
• Pretax ROA, Return on Equity, and Asset Turnover are group leading. These factors have strengthened market perceptions of American Woodmark. The company has normal cash needs.
• Risk Profile has been American Woodmark’s biggest valuation strength. American Woodmark’s risk profile is very favorable. Overall variability has been very low with very low revenue variability, very low E.P.S. variability, Financial Strength is relatively very high and earnings’ expectations are relatively very high. The debt/capital ratio has declined very significantly.

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