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Raymond James Brief Reports Upgrade For Herman Miller
5.21.10 | St. Petersburg, FL | Raymond James & Associates
upgraded
Herman Miller from Market Perform to Outperform.
>We are upgrading Herman Miller from Market Perform to Outperform based on: 1) our view that the contract office furniture industry is in the process of bottoming; and 2) MLHR's more attractive relative valuation following the shares' recent pullback. We are establishing a $22.00 twelve-month target price, justified by our EVA/FCF-derived estimate of intrinsic value and approximating the present value (May 2011) of 14.5x our FY15 EPS estimate of $2.31, assuming a 10% discount rate.
>Our positive investment thesis begins with our view that office furniture demand is at or near a meaningful cyclical trough and poised to rebound given recent improvement in corporate profits, business confidence, and white collar employment trends. To wit, BIFMA estimates industry orders increased 5% year-over-year in March, the first year-over-year order growth since July 2008.
>We believe Herman Miller is well-positioned to benefit from a recovery in demand given its excellent management, innovative design, high-quality products, and lean manufacturing discipline. The company sports a solid balance sheet with $137 million of cash and short-term investments at the end of F3Q10, $139 million of unused capacity on its credit facility, and net debt to adjusted trailing EBITDA of ~1.4x.
>Herman Miller's consolidated F3Q10 orders increased 3.8% year-over-year, driven primarily by a ~9% local currency increase in non-North American orders and $4 million to $5 million of favorable currency translation. While North American orders declined 1%, management noted strength in its healthcare (organic orders +20%), education (up double digits), and retail vertical markets. Core North American office orders fell 13%, though the percentage decline moderated.
>Since mid-March, Herman Miller shares have declined 6%, underperforming peers HNI Corporation (HNI/$28.66/Outperform) +13%, Knoll (KNL/$13.45/Strong Buy) +9%, and Steelcase (SCS/$7.82/Strong Buy) +11%. Over the same time frame, the S&P 500 Index is down 7%. Herman Miller now trades at a reasonable 0.9x trailing revenue, in-line with the peer median and a discount to its 10-year median price-to-sales of 1.0x.
>Our fiscal year estimates are unchanged at $0.73 and $0.94 for FY11 and FY12, respectively, though we have updated our model for currency, the company's F3Q10 10-Q filing, and some other minor "tweaks" that altered the FY11 quarterly progression.
>We are upgrading Herman Miller from Market Perform to Outperform based on: 1) our view that the contract office furniture industry is in the process of bottoming; and 2) MLHR's more attractive relative valuation following the shares' recent pullback. We are establishing a $22.00 twelve-month target price, justified by our EVA/FCF-derived estimate of intrinsic value and approximating the present value (May 2011) of 14.5x our FY15 EPS estimate of $2.31, assuming a 10% discount rate.
>Our positive investment thesis begins with our view that office furniture demand is at or near a meaningful cyclical trough and poised to rebound given recent improvement in corporate profits, business confidence, and white collar employment trends. To wit, BIFMA estimates industry orders increased 5% year-over-year in March, the first year-over-year order growth since July 2008.
>We believe Herman Miller is well-positioned to benefit from a recovery in demand given its excellent management, innovative design, high-quality products, and lean manufacturing discipline. The company sports a solid balance sheet with $137 million of cash and short-term investments at the end of F3Q10, $139 million of unused capacity on its credit facility, and net debt to adjusted trailing EBITDA of ~1.4x.
>Herman Miller's consolidated F3Q10 orders increased 3.8% year-over-year, driven primarily by a ~9% local currency increase in non-North American orders and $4 million to $5 million of favorable currency translation. While North American orders declined 1%, management noted strength in its healthcare (organic orders +20%), education (up double digits), and retail vertical markets. Core North American office orders fell 13%, though the percentage decline moderated.
>Since mid-March, Herman Miller shares have declined 6%, underperforming peers HNI Corporation (HNI/$28.66/Outperform) +13%, Knoll (KNL/$13.45/Strong Buy) +9%, and Steelcase (SCS/$7.82/Strong Buy) +11%. Over the same time frame, the S&P 500 Index is down 7%. Herman Miller now trades at a reasonable 0.9x trailing revenue, in-line with the peer median and a discount to its 10-year median price-to-sales of 1.0x.
>Our fiscal year estimates are unchanged at $0.73 and $0.94 for FY11 and FY12, respectively, though we have updated our model for currency, the company's F3Q10 10-Q filing, and some other minor "tweaks" that altered the FY11 quarterly progression.
Comment | Categories: Business/Finance, Mfg. & Distr.
