REVG
REV Group, Inc.
$63.90
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 142.1% above fair value
You pay
$63.90
Bear
$21.89
Fair
$26.39
Bull
$30.89
Bear
$21.89
-65.7%
$0.82 × 20x + net cash
Fair
$26.39
-58.7%
$0.82 × 24x + net cash
Bull
$30.89
-51.7%
$0.82 × 28x + net cash
Key Value Driver
Through-cycle normalized EPS ($0.82)
Implied Market Multiple
77.9x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $55.00 from 12 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $26.39 per share.
Warnings
Recent profits ($1.89/share) are 130% above the mid-cycle average ($0.82). Buying based on peak profits is the most common mistake with boom-and-bust businesses.
Price-to-book value of 16.2x 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 $55.00 (from 12 analysts). Our estimate is 65% 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