GVA
Granite Construction Incorporated
$125.63
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 138.8% above fair value
You pay
$125.63
Bear
$38.57
Fair
$52.60
Bull
$66.63
Bear
$38.57
-69.3%
$1.70 × 14x + net cash
Fair
$52.60
-58.1%
$1.70 × 18x + net cash
Bull
$66.63
-47.0%
$1.70 × 22x + net cash
Key Value Driver
Through-cycle normalized EPS ($1.70)
Implied Market Multiple
73.9x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $161.00 from 14 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $52.60 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Recent profits ($3.63/share) are 114% above the mid-cycle average ($1.70). Buying based on peak profits is the most common mistake with boom-and-bust businesses.
Price-to-book value of 9.2x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $161.00 (from 14 analysts). Our estimate is 84% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing