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Building A Quality Portfolio With Ethan Allen Interiors

Tuesday, August 10, 2021 | Thomas Hughes
Building A Quality Portfolio With Ethan Allen Interiors

Ethan Allen Interiors Is A Must-Buy For Dividend Growth Investors

It's no secret that we are fond of the furniture industry and Ethan Allen Interiors (NYSE: ETH) is part of this big picture. The company is a mostly North American-based manufacturer of premium furniture and its business is being supported by the same secular trends as its competitors. Internal efforts to improve operations that began during the Trump/Xi trade war set the company up perfectly for the pandemic and now its position as a leader in the North American Market is driving revenue, margin expansion, and free cash flow. 

If the 4.2% dividend yield and positive outlook for distribution growth aren’t enough to get your attention perhaps the special dividend is. The company just announced a special dividend of $0.75 which is equal to 3.1% of current share prices. That payment goes ex-dividend on August 16th and this is the second special dividend the company has paid this year. We will not be surprised to see another one within the next 6 months.

Ethan Allen Interiors Moves Higher On Mixed Results

Ethan Allen Interiors had a great quarter there is no debating that. The results are mixed however in regards to the analyst consensus estimates and pre-COVID business, but we are not too hung up on that. The revenue of $178.30 million came in only as expected but is up 94.7% from last year. While it would have been nice to see the company beat the consensus, the more depressing factoid is that revenue is still trailing pre-COVID levels. Revenue is down about 3% in the 2-year comparison but the difference should be recouped early in fiscal 2022. The company reports a strong backlog that was driven by double-digit increases in written orders in both operating segments for the fiscal year.


Written orders for the year rose 31.7% in the wholesale division and 47.7% in the retail division with evidence of accelerating business in the fourth quarter. Fourth-quarter written retail sales came in at 82% wholesale and 105% retail and these gains should be sticky. Moving down, the company reports significantly wider margins due to cost leveraging and internal efforts put in place over the past two years. The offsetting factor here is that GAAP earnings of  $0.71 missed the consensus by  $0.02 while the adjusted earnings of $0.74 beat by a penny.

The company did not give any formal guidance for the first quarter but mentioned expanding capacity and backlogs in the report several times. Based on those factors and signs within the broader furniture industry we expect to see quarterly Revenue grow sequentially, surpass the pre-COVID revenue levels, and possibly surpass the consensus estimate.

Ethan Allen Interiors Is A Fortress For Your Portfolio

Ethan Allen Interiors delivered strong cash flow and free cash flow during the year and put that money to good use. Not only is the company actively expanding its capacity, investing in technology, and investing in talent it also paid down all of its outstanding debt and delivered robust returns to shareholders. Trading at only 9.75X its fiscal 2022 earnings consensus it is a deep value compared to the broad market, a high-yielding stock delivering more than two times to broad market average, and a fortress investment for any portfolio.

The Technical Outlook: Ethan Allen Interiors Is Ready To Move Higher

Shares of Ethan Allen Interiors have been in a downtrend the last couple of months but it looks like that might be over. On a technical basis, the downtrend appears to be overextended and ripe for reversal that may be sparked by the Q4 earnings report. Early price action has the stock moving higher and supported by bullish signals in the indicators. If the market follows through on this signal we expect to see price action at least retest the 30-days moving average within the next day or two if not move above it. If this stock breaks above the short-term moving average we see it moving up to the $30 range at least, for a gain of roughly 25% and that's not counting the dividends. PS, don’t forget Ethan Allen is changing its ticker symbol to (NYSE: ETD) on August 16th to avoid confusion with Ethereum. 

Building A Quality Portfolio With Ethan Allen Interiors

Should you invest $1,000 in Ethan Allen Interiors right now?

Before you consider Ethan Allen Interiors, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Ethan Allen Interiors wasn't on the list.

While Ethan Allen Interiors currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The 5 Stocks Here

 


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Ethan Allen Interiors (ETH)
2.7631 of 5 stars
$0.00-100.0%11.14Hold$28.00
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