There’s A Dividend Increase Brewing At La-Z-Boy
La-Z-Boy Incorporated (NYSE:LZB) is an under-reported pandemic-winners that still has room to run, it’s that simple. The company is experiencing a robust rebound that has only accelerated since the calendar 2nd quarter. And it’s still a bargain trading at only 16X its forward earnings but there’s more. La-Z-Boy surprised the market last quarter when it reinstated the dividend and it surprised us again by raising it 100% this quarter. The new payment is equal to what the company paid prior to the pandemic, a yield near 1.33%, and there is still room for distribution growth. Based on the balance sheet, the business, and the history investors could see a double-digit increase next quarter too.
“Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said:
"Demand across all La-Z-Boy Incorporated businesses is at record levels as consumers continue to allocate more discretionary spending to home furnishings. Orders are fueling an unprecedented backlog and our supply chain team is doing a great job to continually increase weekly production to service customers and drive increased delivered sales.”
La-Z-Boy Jumped Over A High Bar
La-Z-Boy’s results are impressive enough on their own, add in the fact that the consensus estimate has been rising steadily since May and the results are mind-boggling. On the top-line, revenue increased across the company’s footprint by 2.7% YOY, not a big gain I know, but beat the consensus by $32.1 million or 750 basis points. The jump in revenue was driven by a 34% increase in written comp-store sales that is contributing to the company’s backlog. Mr. Darrow continued:
“For the quarter, we produced a double-digit consolidated operating margin, with all operating companies posting excellent results, including Joybird which turned a profit for the first time. (We are) clearly resonating with consumers during these uncertain times, solid cash generation, a robust balance sheet, and prudent expense management, we are confident we will continue to adeptly navigate the challenging COVID-19 landscape while we remain focused on providing a safe environment for employees and customers.”
Moving down the report, the company is able to leverage the increase in backlog and that is showing up in the margins and earnings. Margins expanded across all operating segments in the range of 300 to 500 basis points and helping the company generate impressive cash flow. The company’s cash position increased to $353 million over the course of the quarter, about $8 million, including a $50 million payment that brings its credit facility to zero. On the bottom-line, GAAP and adjusted EPS both beat consensus by $0.30 at least to nearly double the expectation.
La-Z-Boy Is A Growing Value
La-Z-Boy is a value now and that’s not considering the ramp in production capacity or outlook for growth. Trading at 15.5X 2021 earnings the stock is 6 to 7 multiples cheaper than the average S&P 500 company and it pays a much healthier dividend. The yield is below average at 1.33% but there is the growth outlook to consider. The company is sitting on relatively low levels of debt, the leverage ratio is sub-1X FCF, FCF is growing, and so is the cash pile. At today’s levels, the company has over $7.50 per share in cash or more than enough to sustain operations, invest in growth, and raise the dividend with some left over.
The Technical Outlook: A Major Break Out Is Underway For La-Z-Boy
Shares of La-Z-Boy popped on the news gaining 10% to set a new all-time high. The move looks strong and is supported by the indicators so upward momentum could build. The indicators are particularly telling and show what I consider to be a strong, trend-following buy signal. If price action is able to maintain the current levels and/or consolidate near this level further upside is likely. Assuming the stock’s move up from the short-term EMA to today’s high is a bullish flag-pole we could see as much as $8 or 20% upside over the next quarter.
