HNI Corp. – Value Analysis (NYSE:HNI) : December 21, 2017

Capitalcube gives HNI Corp. a score of 53.

Our analysis is based on comparing HNI Corp. with the following peers – Knoll, Inc., Steelcase Inc. Class A, Herman Miller, Inc., Kimball International, Inc. Class B, Virco Mfg. Corporation, Snap-on Incorporated, Kewaunee Scientific Corporation and Dorel Industries Inc. Class A (KNL-US, SCS-US, MLHR-US, KBAL-US, VIRC-US, SNA-US, KEQU-US and DII.A-CA).

Investment Outlook

HNI Corp. has a fundamental score of 53 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It’s current Price/Book of 3.18 is about median in its peer group.
  • The market expects HNI-US to grow faster than its peers and for the company to improve its current ROE.
  • HNI-US‘s relative asset efficiency and net profit margins are both around the median level.
  • Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
  • HNI-US‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • While HNI-US‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s capital investment seems appropriate for a business with peer median returns.
  • HNI-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

HNI-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 14.94% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 12.55%), and a well-cushioned interest coverage level of 34.28x, HNI-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 8 peers for the company have an outstanding debt balance.

HNI-US has maintained its Quick & Able profile from the recent year-end.

  • HNI-US‘s interest coverage has declined 13.92 points from last year’s high but remains above its five-year average interest coverage of 21.98.
  • Though its interest coverage decreased to 34.28x from 48.20x (in 2016), its peer median remained relatively stable during this period at 16.57x.
  • Interest coverage fell 14.14 points relative to peers.
  • HNI-US‘s debt-EV is its highest relative to the last five years and compares to a low of 8.10% in 2016.
  • The increase in its debt-EV to 14.94% from 8.10% (in 2016) was also accompanied by an increase in its peer median during this period to 12.55% from 9.64%.
  • Relative to peers, debt-EV rose 3.93 percentage points (and is now higher than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Knoll, Inc. 13.82 1.31 16.74 57.88
Steelcase Inc. Class A 15.67 1.58 9.8 64.59
Herman Miller, Inc. 9.64 1.33 13.38 103.13
Kimball International, Inc. Class B 0.75 1.72 867.98 1415.06
Virco Mfg. Corporation 7.06 2.17 3.2 45.9
Snap-on Incorporated 12.55 1.75 16.57 68.36
Kewaunee Scientific Corporation 12.51 2.12 23.18 93.44
Dorel Industries Inc. Class A 33.57 1.78 2.97 20.65
HNI Corporation 14.94 1.08 34.28 58.48
Peer Median 12.55 1.72 16.57 64.59
Best In Class 0.75 2.17 867.98 1415.06

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Company Profile

HNI Corp. engages in the manufacturing and trading of office furniture. It operates through two segments: Office Furniture and Hearth Products. The Office Furniture segment manufactures and markets storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions, and panel systems. The Hearth Products segment develops and markets gas, electric, wood, and biomass burning fireplaces, inserts, stoves, facing, and accessories. The company was founded by C. Maxwell Stanley, Clem Hanson and H. Wood Miller in 1944 and is headquartered in Muscatine, IA.

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