{"id":64887,"date":"2023-09-24T13:17:22","date_gmt":"2023-09-24T17:17:22","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/ennis-generous-and-safe-dividend-yield-nyseebf\/"},"modified":"2023-09-24T13:17:27","modified_gmt":"2023-09-24T17:17:27","slug":"ennis-generous-and-safe-dividend-yield-nyseebf","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=64887","title":{"rendered":"Ennis: Generous And Safe Dividend Yield (NYSE:EBF)"},"content":{"rendered":"
\n

<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Ennis, Inc. (NYSE:EBF<\/span>) manufactures forms and other products for businesses. I believe the company\u2019s risk profile is very low, providing investors with a safe choice in the current economy. Although the company\u2019s growth history isn\u2019t very promising, I believe the current valuation leaves a good safety margin for investors with a good and safe dividend yield. For that reason, I have a buy-rating for the stock.<\/span><\/p>\n

The Company<\/h2>\n

Ennis produces and sells multiple products in the print industry. The company\u2019s offering includes forms, financial products, presentation folders, envelopes, as well as tags and labels. Ennis has a long history, as the company was incorporated in 1909 in Texas. The company has kept its operations in the United States.<\/p>\n

The company\u2019s offering is quite defensive in its nature \u2013 businesses need office supplies and similar products with a stable demand. I believe this is a very good strength in the current economy, as interest rates <\/span>keep rising and worries for a hard landing are on the rise. As discussed in the financials section, the company\u2019s numbers have demonstrated the stable nature of Ennis\u2019 operations.<\/span><\/p>\n

Ennis\u2019 stock price has stayed quite stable in the past ten years, as the ten-year CAGR for the stock is only 2.5%:<\/p>\n

\n

\"ennis<\/span>
\n

Ennis’ 10-Year Stock Chart (Seeking Alpha)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Despite the low price appreciation, the company\u2019s investors haven\u2019t been left with an almost non-existent return as Ennis pays a good quarterly dividend; currently the company\u2019s forward dividend yield is estimated at 4.75%.<\/p>\n

Financials<\/h2>\n

Ennis has had quite turbulent revenues in its long-term history. Although the company\u2019s revenues declined by 30% in fiscal year 2015, the company has achieved a mediocre growth of 3% from fiscal year 2003 to fiscal year 2023:<\/p>\n

\n

\"ennis<\/span>
\n

Author’s Calculation Using TIKR Data<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The growth hasn\u2019t been achieved completely organically either, though \u2013 the company seems to have quite constant acquisitions, with a most recent acquisition of UMC Print in June. Speaking of an extensive acquisition history, the company has numerous subsidiaries through which the company operates:<\/p>\n

\n

\"ennis<\/span>
\n

Ennis’ Subsidiaries (ennis.com)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Although the company\u2019s revenue growth history isn\u2019t very good, the company\u2019s history of a stable EBIT margin partly compensates for the prior \u2013 the company\u2019s margin has stayed between 10% and 15% for almost all of its history from FY2003 to FY2023, with an average of 11.6% and a trailing figure of 13.1%.<\/p>\n

\n

\"ebit<\/span>
\n

Author’s Calculation Using TIKR Data<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The stability is a very valuable aspect as the economy is turbulent \u2013 I believe Ennis\u2019 dividend yield is very safe due to the stable earnings level. In fiscal year 2009, for example, the company\u2019s operating income fell by 24%, a very moderate amount compared to most small-cap stocks. The company has also managed the currently stagnant economy well, as in the first half of fiscal 2024 the company\u2019s earnings have only fallen very slightly.<\/p>\n

Even though I don\u2019t believe the company needs any more stability, Ennis provides it with a very cash-heavy balance sheet. The company has $100 million in cash and doesn\u2019t have any outstanding interest-bearing debt. The cash balance alone represents around 18% of the company\u2019s market capitalization of around $540 million.<\/p>\n

Valuation<\/h2>\n

Although not seeming like a screaming buy, at a trailing price-to-earnings ratio of 11.9 Ennis seems quite cheap considering the company\u2019s risk profile. The ratio is also below the five-year average of 15.2:<\/p>\n

\n

\"history<\/span>
\n

Historical P\/E (TIKR)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

To demonstrate the low risk profile\u2019s effect on a company and to get an estimate of Ennis\u2019 fair value, I constructed a discounted cash flow model. In the model, I estimate decreasing revenues of 3% in the current year as demand is still lower than normal, although not highly affected demonstrated by a small decrease in revenues in Q2\/FY2024. Going forward, I estimate a nominal growth of 2% – the company\u2019s organic growth has been quite low historically, and I don\u2019t necessarily estimate a change in the trend.<\/p>\n

For Ennis\u2019 EBIT margin, I have an estimate of 13.0% for the current fiscal year, 0.8 percentage points below fiscal year 2023. Further, to be conservative, I estimate a decrease of 0.5 percentage points in fiscal year 2025 into a margin that\u2019s more in line with Ennis\u2019 long-term history. I don\u2019t see any specific catalyst for a decrease, but I believe it\u2019s good to be conservative. The company also has a very strong cash flow conversion, as Ennis has a good amount of amortization in the EBIT due to past acquisitions.<\/p>\n

With these estimates and a WACC of 7.64%, the DCF model estimates a fair value of $33.75, around 58% above the current price:<\/p>\n

\n

\"discounted<\/span>
\n

DCF Model (Author’s Calculation)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The used weighed average cost of capital is derived from a capital asset pricing model:<\/p>\n

\n

\"cost <\/picture>
\n

CAPM (Author’s Calculation)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Ennis hasn\u2019t leveraged interest-bearing debt in the medium-term \u2013 I estimate the trend to continue, as I estimate a long-term debt-to-equity ratio of 0%. For the risk-free rate on the cost of equity side, I use the United States\u2019 10-year bond yield of 4.42%. For the equity risk premium, I use Professor Aswath Damodaran\u2019s latest estimate of 5.91% for the US. Yahoo Finance estimates Ennis\u2019 beta to be 0.46 \u2013 the low beta further demonstrates Ennis\u2019 low risk profile. Finally, I add a liquidity premium of 0.5%, crafting a cost of equity and WACC of 7.63%, used in the DCF model.<\/p>\n

Takeaway<\/h2>\n

Although investors won\u2019t probably see a very high long-term annual return on the stock, I believe Ennis is a worthy dividend pick due to the low risk profile. In my opinion, the current price doesn\u2019t fully reflect on Ennis\u2019 risk profile and large cash balance. With a DCF model pointing towards a very significant upside on the stock, I have a buy-rating on Ennis.<\/p>\n<\/div>\n

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

Ennis, Inc. (NYSE:EBF) manufactures forms and other products for businesses. I believe the company\u2019s risk profile is very low, providing investors with a safe choice in the current economy. Although the company\u2019s growth history isn\u2019t very promising, I believe the current valuation leaves a good safety margin for investors with a good and safe dividend […]<\/p>\n","protected":false},"author":1,"featured_media":64888,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-64887","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nEnnis: Generous And Safe Dividend Yield (NYSE:EBF) | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Ennis, Inc. (NYSE:EBF) manufactures forms and other products for businesses. 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