{"id":15690,"date":"2023-05-30T11:35:29","date_gmt":"2023-05-30T15:35:29","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/a-quality-executive-companys-plan-lowers-the-risk-of-investing-in-boise-cascade\/"},"modified":"2023-05-30T11:35:30","modified_gmt":"2023-05-30T15:35:30","slug":"a-quality-executive-companys-plan-lowers-the-risk-of-investing-in-boise-cascade","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=15690","title":{"rendered":"A Quality Executive Company\u2019s Plan Lowers The Risk Of Investing In Boise Cascade"},"content":{"rendered":"
\n

Recap from April Picks<\/strong><\/h3>\n

The Exec Comp Aligned with ROIC Model Portfolio (-1.6%) underperformed the S&P 500 (+0.1%) from April 14, 2023 through May 10, 2023. The best performing stock in the portfolio was up 14%. Overall, six out of the 15 Exec Comp Aligned with ROIC Stocks outperformed the S&P from April 14, 2023 through May 10, 2023.<\/p>\n

This Model Portfolio only includes stocks that earn an attractive or very attractive rating and align executive compensation with improving ROIC. I think this combination provides a uniquely well-screened list of long ideas because return on invested capital (ROIC) is the primary driver of shareholder value creation.<\/p>\n

New Stock Feature for May: Boise Cascade
\n
\n BCC
\n <\/fbs-ticker> <\/strong><\/h3>\n

Boise Cascade Company (BCC) is the featured stock in May\u2019s Exec Comp Aligned with ROIC Model Portfolio.<\/p>\n

Boise Cascade has grown revenue and net operating profit after tax (NOPAT) by 11% and 39% compounded annually, respectively, since 2017. The company\u2019s NOPAT margin improved from 3% in 2017 to 9% in the trailing twelve months (TTM), while invested capital turns rose from 3.3 to 3.6 over the same time. Rising NOPAT margins and invested capital turns drive the company\u2019s return on invested capital (ROIC) from 9% in 2017 to 31% in the TTM.<\/p>\n

<\/fbs-ad><\/p>\n

Figure 1: Boise Cascade\u2019s Revenue & NOPAT: 2012 \u2013 TTM<\/strong><\/p>\n

Executive Compensation Properly Aligns Incentives<\/strong><\/h3>\n

Boise Cascade\u2019s executive compensation plan aligns the interests of executives and shareholders by tying a portion of its Long-Term Incentive Plan Performance Share Units to ROIC according to the company\u2019s proxy statement.<\/p>\n

The company\u2019s inclusion of ROIC as a performance goal has helped create shareholder value by driving higher ROIC and economic earnings. When I calculate ROIC using my firm\u2019s superior fundamental data, I find that Boise Cascade\u2019s ROIC has increased from 10% in 2012 to 31% in the TTM. Economic earnings rose from $28 million to $453 million over the same time.<\/p>\n

Figure 2: Boise Cascade\u2019s ROIC: 2012 \u2013 TTM<\/strong><\/p>\n

BCC Has Further Upside<\/strong><\/h3>\n

At the current price of $75\/share, BCC has a price-to-economic book value (PEBV) ratio of 0.4. This ratio implies the market expects Boise Cascade\u2019 NOPAT to permanently fall by 60%. This expectation seems overly pessimistic for a company that has grown NOPAT 23% compounded annually over the past decade.<\/p>\n

Even if Boise Cascade\u2019s NOPAT margin falls to 6% (5-yr average vs. 9% in the TTM) and the company\u2019s revenue falls <1% compounded annually over the next decade, the stock would be worth $104\/share today \u2013 a 39% upside. See the math behind this reverse DCF scenario. In this scenario, Boise Cascade\u2019s NOPAT in 2032 would be 30% below TTM levels.<\/p>\n

For reference, Boise Cascade has grown NOPAT by 23% compounded annually over the past decade. Should the company grow NOPAT more in line with historical growth rates, the stock has even more upside.<\/p>\n

Critical Details Found in Financial Filings by My Firm\u2019s Robo-Analyst Technology<\/strong><\/p>\n

Below are specifics on the adjustments I made based on Robo-Analyst findings in Boise Cascade\u2019s 10-K:<\/p>\n

Income Statement: I made $70 million in adjustments with a net effect of removing $8 million in non-operating income (<1% of revenue).<\/p>\n

Balance Sheet: I made $964 million in adjustments to calculate invested capital with a net decrease of $742 million. One of the largest adjustments was $87 million (3% of reported net assets) in asset write-downs.<\/p>\n

Valuation: I made $1.2 billion in adjustments, with a net effect of increasing shareholder value by $25 million. The most notable adjustment to shareholder value was $620 million in excess cash. This adjustment represents 21% of Boise Cascade\u2019 market cap.<\/p>\n

Disclosure: David Trainer, Kyle Guske II, and Italo Mendon\u00e7a receive no compensation to write about any specific stock, style, or theme.<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Recap from April Picks The Exec Comp Aligned with ROIC Model Portfolio (-1.6%) underperformed the S&P 500 (+0.1%) from April 14, 2023 through May 10, 2023. The best performing stock in the portfolio was up 14%. Overall, six out of the 15 Exec Comp Aligned with ROIC Stocks outperformed the S&P from April 14, 2023 […]<\/p>\n","protected":false},"author":1,"featured_media":15691,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-15690","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","tag-featured"],"yoast_head":"\nA Quality Executive Company\u2019s Plan Lowers The Risk Of Investing In Boise Cascade | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Recap from April Picks The Exec Comp Aligned with ROIC Model Portfolio (-1.6%) underperformed the S&P 500 (+0.1%) from April 14, 2023 through May 10,\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=15690\" \/>\n<meta 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