GVA
Granite Construction Incorporated
$116.65
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 281.2% above fair value
You pay
$116.65
Bear
$23.80
Fair
$30.60
Bull
$37.40
Bear
$23.80
-79.6%
$1.70 × 14x
Fair
$30.60
-73.8%
$1.70 × 18x
Bull
$37.40
-67.9%
$1.70 × 22x
Adjust Assumptions
18.0x
1.7$
Key Value Driver
Through-cycle normalized EPS ($1.70)
Implied Market Multiple
68.6x
Analyst Consensus (External Reference)
Never blended into the bear/base/bull estimates above.
Average Target (15 analysts)
$159.67
Divergence from AlphaVal
81%
Summary
Using 7-year normalized EPS of $1.70 at a 18x cycle multiple, the base-case value is $30.60 per share. P/TBV cross-check: 8.5x.
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 8.5x 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 $159.67 (from 15 analysts). Our estimate is 81% 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