Griffon Corp: No Sale...But Great Stand-Alone Prospects

Management at Griffon ( ) was frustrated with what they felt was a major undervaluation of its shares last year. It began entertaining offers to sell part or the entire company in January 2022 to try to achieve a more fitting and generous share price. They decided on April 20 that none of the offers received were close to fair value. Shares that had run up to $43.74 in February in anticipation of a deal briefly dropped as low as $26.05 intraday as speculators dumped the shares on the news of no sale. Nothing has changed, though, about Griffon's undervalued status. Both Value Line and Yahoo Finance see FY 2023 earnings per share coming in at $3.52 (FY ends Sep. 30, 2023), a record. FASTgraphs' analyst looks for just 2 cents less. If those estimates prove accurate EPS will have grown by greater than 360% over the past five years. Cash flow per share more than doubled. Dividends, excluding special dividends, grew by 42.9% over the half-decade as well. Total return on Griffon, after its recent pullback, is now just a fraction of the actual value created. That situation is almost always resolved via a catch-up move higher to arbitrage away the discrepancy. Since 2014, Griffon's average price-to-earnings ratio ran 19.1 times, accompanied by around 1.33% in yield. As April 21, the forward P/E is just 8.2 times while the yield is slightly above average at 1.38% The second $2 per share special dividend in the past couple of years was just declared. The shares go ex-dividend for that, plus the usual quarterly payout on May 8, 2023. An enlarged share price buyback authorization was also announced last week. A simple reversion to the mean valuation for Griffon could easily send the stock to north of $68 later this year. Research from Morningstar ( ) takes a more conservative view on year-ahead performance for Griffon. It sees present-day, as opposed to year-ahead, fair value as $38.26 per share. That is far from an upper limit but achieving that goal would still deliver a solid 32.2% plus dividends upside from today's quote of $28.95. Yahoo Finance projects a 12-month rise on Griffon to $50.60. I would call that very conservative as it assumes GFF only commands 14.4 times this year's EPS rather than a more typical 19 - 20 multiple. Even so, making 74.5% plus dividends over the coming year would be a fine return. Quantitatively-based FASTgraphs research also loves Griffon now that it has retreated to a bargain price. They call a 20.5 multiple as typical for Griffon . A return to that P/E could easily take the stock up to $70 or so. That assumption appears well supported. Griffon hit top valuations running from 22.1 times to 31.2 times earnings at peaks hit from 2015 through 2021. Option-minded traders might also wish to sell naked puts on Griffon out to its Dec. 15, 2023 expiration date. Actual pricing on its $25, $28, and $30 strike price puts, with Griffon at $28.89, are shown below. Once the $2 special dividend goes-ex next month those strike prices will each drop by $2 (to $23, $26 or $28) to adjust for that payment. Griffon is a proven left-to-right growth stock now available at a huge discount to both its historical valuation level as well as its rational true worth. Buy some shares, short some naked puts, or consider doing both.

Griffon Corp: No Sale...But Great Stand-Alone Prospects

Griffon is a proven "left-to-right" growth stock available at a huge discount to both its historical valuation level as well as its rational true worth.

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