Patrick Industries, Inc.

PATK Details

Patrick Industries, Inc. (NASDAQ: PATK) is engaged in manufacturing and commercializing building products, materials serving recreational vehicles (RVs), marine, manufactured housing (MH), and industrial markets. As of December 31, 2020, Patrick has 141 manufacturing plants and 58 warehouse and distribution centers across 23 U.S. states, China, Canada, and the Netherlands. The company operates in the following segments: 1) Manufacturing of laminated products that are used to produce furniture, walls, countertops, cabinet products, and other allied RVs components, 2) Distribution of pre finishes wall and ceiling panels, audio systems components as well as transportation and logistics services. As of June 18, 2021, the company’s market capitalization stood at USD 1.70 billion.        

Acquisition and Expansion activities: In April 2021, PATK completed the acquisition of Alpha Systems, LLC (Alpha), manufacturer and distributor of component products, serving the RV industry. Alpha operates with nine manufacturing and distribution facilities located in Elkhart, Indiana. PATK expects this acquisition to be immediately accretive to the earnings per share (EPS). Moreover, in April 2021, PATK also completed the acquisition of Hyperform, Inc., a leading manufacturer of high-quality foam flooring products, operating under the SeaDeck trademark. PATK anticipates the acquisition of Hyperform to be immediately accretive to net income per share.

Robust Q1FY21 Results: The company reported a massive increase of 44.33% in net sales to USD 850.48 million in Q1FY21 (ending March 28, 2021) compared to USD 589.23 million in Q1FY20 (ending March 29, 2020), was primarily attributed to sales increases from recreational vehicles (RV) and marine markets. The Company's RV market sales increased 57%, marine market sales increased 75%, industrial market sales increased 16% and MH market sales increased 7% as compared to the prior year quarter. The company’s manufacturing segment contributed 70.63% while the distribution segment contributed 29.37% of the net sales generated during the quarter. In addition, PATK recorded the net income of USD 47.51 million in Q1FY21 compared to USD 21.18 million in Q1FY20. As of March 28, 2021, the company stood at the cash and cash equivalents of USD 6.17 million and available credit facility of USD 296.80 million with the total debt of 793 million.

Financial Metrics (Source: Investor Presentation, May 2021)

Key Risks: Two customers in the RV market of the company accounted for 30% of its consolidated sales in FY20. The loss of either of these customers could negatively impact the company’s financial health. Moreover, the RV industry contributed 56% and 55% of the total net sales in FY20 and FY19. Any significant decline in RV unit shipment levels or reduction in industry growth could adversely impact the company’s operations.

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PATK Daily Technical Chart 

Stock Recommendation: PATK’s share price has declined by 19.13% in the past one month and is currently trading at a mid-band of the 52-week range of USD 47.73 to USD 98.83. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 84.19. On the technical chart, the next support level is USD 65.50. Considering the company’s robust track record, strong balance sheet, recent acquisition and expansion activities, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 71.62, down by 3.22% as of June 18, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

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