SKY - Cavco Industries: Fantastic Business But Transition Period To Avoid

2024-03-20 11:17:36 ET

Summary

• CVCO’s growth has been impressive (CAGR: +14%), driven by strong execution and industry tailwinds.
• The housing industry is benefiting from considerable tailwinds, primarily due to a housing shortage and population growth. We expect this to drive growth in the coming years.
• The business is seeing near-term headwinds, however, due to the current macroeconomic environment. Whilst this is weighing on near-term growth, we see resilience in the market.
• The company’s growth has considerably outpaced its peers but CVCO is lacking in margins. We believe the gap can close but requires supreme execution.
• CVCO’s valuation is fair considering the upside potential from growth, while also reflecting the downside risk associated with economic conditions.

Introduction and thesis

Cavco Industries, Inc. ( CVCO ) is a leading builder of manufactured and modular homes in the United States. Founded in 1965 and headquartered in Phoenix, Arizona, Cavco operates a network of manufacturing facilities across the country and offers a wide range of homes under various brand names, catering to different market segments and price points.

CVCO is a quality business, with a strong business model and considerable reach across the US. The company operates in key geographies in the US and has developed a broad offering for consumers. The company is a premier homebuilder in the US....

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