The Duckhorn Portfolio: Thesis Unchanged


  • The Duckhorn Portfolio has done well to continue growing its top line, and its bottom line results are encouraging.
  • Shares of the company do still look pricey on an absolute basis, but they look reasonably pricey compared to similar firms.
  • The company isn't a great play by any means, but it's far from a bad one also.
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Freeze motion of red wine pouring into glass.

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Buying into expensive companies can be a rather risky endeavor. But if the companies are growing at a rate that pleases investors enough to justify that premium, then it can pay off quite well. For those who don't mind that risk, one company that is worth considering is The Duckhorn Portfolio (NYSE:NAPA). As you might have guessed from its ticker symbol, the company focuses on the production of alcohol. But it doesn't just focus on any alcohol. The firm emphasizes the production of luxury wines, though it defines this as wines ranging in price from as low as $15 to as high as $200 per bottle. Despite problems in the broader economy, the business has continued to perform quite well. Management is also making some interesting moves aimed at increasing growth and returns moving forward. I still maintain that shares are rather lofty, leading me to retain my 'hold' rating on the company for now. But that doesn't change the fact that I have been positively surprised by its most recent results.

Generally attractive performance

The last time I wrote an article about Duckhorn was back in late March of this year. At the time, the company had been thriving off of strong fundamental performance. That came even as it experienced some minor bumps along the way. I told investors that I felt the company would likely fare well over the long run from a value creation perspective. But I was not yet ready to rate the company as anything other than a 'hold' because of how pricey the stock looked. Since then, shares have outperformed my expectations. While the S&P 500 is down by 13.4%, shares of Duckhorn have generated a profit for investors of 1.2%. Although this may seem to meet the typical criteria of a 'hold' rating, it's important to note that I define a 'hold' as a company that should generate returns of more or less match the broader market moving forward. Compared to that, Duckhorn has done remarkably well.

Historical Financials

Author - SEC EDGAR Data

In my prior article, we only had data covering through the second quarter of the company's 2022 fiscal year. Fast forward to today, and we now have data covering through the first three quarters of 2022. Although any player in the wine space is unlikely to grow at a rapid pace, the company did experience some increase in revenue in the latest quarter compared to the same time last year. According to the data available, sales came in at $91.6 million. That's 1.3% higher than the $90.4 million generated the same time last year. This increase in revenue came even as lower volumes impacted revenue to the tune of 0.6%. At the same time, price and product mix pushed sales up by 1.9%. Thanks to this positive quarter, sales for the first three quarters of 2022 came in at $294.5 million. That's 10.8% above the $265.7 million generated the same time one year earlier. On this front, price and product mix only helped in the amount of 0.8%. Meanwhile, volume increases pushed sales up by 10%.

On the bottom line, management posted even better results. Net income in the latest quarter came in at $15.6 million. That's significantly higher than the $9 million generated the same time last year. This helped to push net profits for the first nine months of the year up even higher, totaling $54.8 million compared to the $48.5 million achieved the same time last year. Operating cash flow also followed suit, climbing from $15.4 million in the third quarter of 2021 to $29.1 million the same time this year. If we adjust for changes in working capital, however, the picture is slightly less bullish, with the metric inching up from $22 million to $22.6 million. As you can see in the chart below, these results were also instrumental in pushing up cash flow figures for the entirety of the 2022 fiscal year that we have seen so far. Over that same window of time, EBITDA for the company remained flat at $32.9 million for the year. But that didn't stop it from coming in strong for the first nine months as a whole, with a reading of $105.3 million beating out the $98.8 million generated in the first nine months of 2021.

Historical Financials

Author - SEC EDGAR Data

When it comes to the 2022 fiscal year as a whole, management does have positive expectations for the company. Sales are forecasted to come in at between $369 million and $373 million. At the midpoint, this reading of $371 million would translate to a year-over-year increase of 10.2% compared to the $336.6 million generated in 2021. This guidance is also greater than the $366.5 million midpoint that management previously anticipated for the year. More likely than not, sales growth will also continue into future periods. I say this because management continues to invest in growth initiatives. In May of this year, for instance, the company acquired a 265-acre Cabernet Sauvignon vineyard in California. This also includes an additional 24 acres of ranch space. And the land in question is near the 82 acres of estate vineyards that the company already has in that region. Unfortunately, we don't know any of the details of this purchase or the impact that it will have on the company.

Trading Multiples

Author - SEC EDGAR Data

On the bottom line, management expects earnings per share of between $0.59 and $0.62. At the midpoint, this should translate to net income of $69.9 million. Another metric to consider is EBITDA. The current forecast is for that to be between $125 million and $128 million. Five guidance was given when it came to operating cash flow. But if we assume that it will increase at the same rate that EBITDA should, then we should anticipate a reading of $69.4 million for the year. Given these numbers, we can see that the company is trading at a forward price-to-earnings multiple of 30.2. The price to operating cash flow multiple should be 30.4, while the EV to EBITDA multiple should come in at 18.4. As you can see in the chart above, these numbers do compare favorably to what the company is priced at if we use 2021's results. And in the table below, you can see how the company is priced compared to five similar firms. On a price-to-earnings basis, these firms traded at multiples of between 17.6 and 60.5. Two of the five were cheaper than our prospect. Using the price to operating cash flow approach, the multiples were between 16.5 and 33.4, with four of the firms being cheaper than Duckhorn. And using the EV to EBITDA approach, they were between 9.7 and 25.9, with four being cheaper. It should be noted that the only one of the five that are of similar size to Duckhorn is MGP Ingredients (MGPI) and its shares are a bit cheaper by comparison. Vintage Wine Estates (VWE) is far smaller, and its shares are at the low end of the scale (from a cash flow and EBITDA perspective, while from the earnings perspective it is more expensive). The larger size of the other firms does create some comparability issues, but the fact that Duckhorn is not outside of the range of these players suggests that the stock might not be overpriced on a relative basis at least. But relative to MGP Ingredients and Vintage Wine Estates, the firm is pricey.

Company Price / Earnings Price / Operating Cash Flow EV / EBITDA
The Duckhorn Portfolio 30.2 30.4 18.4
MGP Ingredients 23.4 18.5 16.0
Brown-Forman (BF.A) (BF.B) 36.6 33.4 25.9
The Boston Beer Company (SAM) 38.1 15.6 16.8
Vintage Wine Estates 60.5 19.4 9.7
Constellation Brands (STZ) 24.3 16.5 16.6


Based on all the data provided, I will admit that Duckhorn continues to do well for itself from a fundamental perspective. Long term, I expect this trend to continue. Having said that, shares are very pricey at this time. But given how other similar companies are trading, the stock probably is closer to being fairly valued. All things considered, this leads me to still feel comfortable only with a 'hold' rating at this time. But if shares were to fall significantly or growth were to take a significant step up, then a case could be made that it might make sense to buy into.

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This article was written by

Daniel Jones profile picture
Robust cash flow analyses of oil and gas companies

Daniel is currently the manager of Avaring Capital Advisors, LLC, a registered investment advisor that oversees one hedge fund, and he runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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