BUSINESS
CVD Equipment Corporation, together with its subsidiaries, designs, develops, manufactures, and sells process equipment and solutions that are used to develop and manufacture materials and coatings for research and industrial applications in the United States. It operates through three segments: CVD, SDC, and CVD Materials. The company offers chemical vapor deposition systems for use in the research, development, and manufacture of aerospace, medical components, semiconductors, LEDs, carbon nanotubes, nanowires, solar cells, and other industrial applications; and rapid thermal processing systems for use in implant activation, oxidation, silicide formation, and other processes.
INVESTMENT RATING
CVV is expected to be a modest Value Eraser reflecting capital returns that are forecasted to fall short of the cost of capital.
CVD Equipment has a current Value Trend Rating of F (Lowest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. CVD Equipment has a poor Power Rating of 22 and a very low Appreciation Score of 14, resulting in the Lowest Value Trend Rating.
CVD Equipment’s stock is selling significantly above targeted value. The current stock price of $5.43 compares to targeted value 12 months forward of $3.
CVD Equipment’s very low appreciation potential results in an appreciation score of 14 (86% of the universe has greater appreciation potential.)
CVD Equipment has a Power Rating of 22. (This poor Power Rating indicates that CVV only has a better chance of achieving attractive investment performance over the near to intermediate term than 22% of companies in the universe.)
Factors contributing to this poor Power Rating include: recent price action has been unfavorable; and the Special Industry Machinery, NEC comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
CVV’s financial strength is poor. Financial strength rating is 7.
Relative to the S&P 500 Composite, CVD Equipment Corp has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CVV is higher risk. Relative weaknesses include: low historical profitability, low financial strength, high stock price volatility, low historical growth, and high earnings variability. CVV’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. CVV has unusually low market capitalization.
CURRENT SIGNALS
CVD Equipment’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
CVD Equipment’s current technical position is mixed. The stock price is in a 3.3 month up move. The stock has appreciated 35.2% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Recent small negative changes in fundamentals have impacted CVD Equipment Corp (NASDAQ: CVV): significant quarterly earnings deceleration occurred.
The stock is currently rated F.
On 4/10/24, CVD Equipment Corp (NASDAQ: CVV) stock declined by -4.3%, closing at $5.43. However, this decline was accompanied by below average trading volume at 70% of normal. Relative to the market the stock has been extremely weak over the last nine months and has declined -6.9% during the last week.
CASH FLOW
In 2022, CVD Equipment experienced a significant decline in cash of -$2.29 million (-14%). Sources of cash were lower than uses. Cash consumed from 2022 EBITDA totaled -$0.96 million. Non-operating sources contributed +$1.61 million (-169% of EBITDA). In 2022, there were no cash taxes paid. Re-investment in the business amounted to -$2.03 million (+212% of EBITDA). On a net basis, debt investors withdrew -$1.35 million (+141% of EBITDA) while equity investors supplied +$0.44 million (-46% of EBITDA).
CVD Equipment’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the third quartile and top quartile. Currently, CVD Equipment is substantially below median at -169% of EBITDA (+$1.61 million).
CVD Equipment’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the top quartile and lower quartile. Currently, CVD Equipment is upper quartile at +0% of EBITDA ( $0.00 million).
CVD Equipment’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the top quartile and lower quartile. Currently, CVD Equipment is at the upper quartile at +212% of EBITDA (-$2.03 million).
CVD Equipment’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the top quartile and second quartile. Currently, CVD Equipment is upper quartile at +141% of EBITDA (-$1.35 million).
CVD Equipment’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the third quartile and top quartile. Currently, CVD Equipment is substantially below median at -46% of EBITDA (+$0.44 million).
CVD Equipment’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the top quartile and lower quartile. Currently, CVD Equipment is at the upper quartile at +239% of EBITDA (-$2.29 million).
CVD Equipment’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvd Equipment Peer Group. In most years, CVD Equipment was in the top quartile and second quartile. Currently, CVD Equipment is above median at +56%.
PROFITABILITY
CVD Equipment’s return on equity has eroded very significantly since 2015. The current level is -1.3% versus the high of 9.6% and the low of -14.3%.
This very significant erosion was due to very strong negative trend in pretax operating return and very minor positive trend in non-operating factors.
The productivity of CVD Equipment’s assets remained stable over the full period 2013-2023: asset turnover has exhibited little to no overall change even as it experienced very sharp improvement from the 2020 level.
Additionally, pretax margin experienced a strong overall downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
CVD Equipment’s return on equity is lower quartile (-1.3%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (-0.9%) reflecting asset turnover that is at the upper quartile (0.73X) and lower quartile pretax margin (-1.3%).
Tax “keep” rate (income tax management) is at the upper quartile (104.1%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at the lower quartile (1.32X).
GROWTH RATES
Overall, CVD Equipment’s growth rate has slowed considerably in recent years.
CVD Equipment’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been -2.9% per year.
Total asset growth has been -2.8% per year. (More recently it has been -8.5%.)
Annual E.P.S. growth has been 4.0% per year.
Equity growth has been -2.8% per year. (More recently it has been 4.8%.)
No consensus growth rate forecast is available for CVD Equipment.
Relative to the Cvd Equipment Peer Group, CVD Equipment’s historical growth measures are consistently lower quartile. Revenue growth (-2.9%) has been lower quartile. Total asset growth (-2.8%) has been lower quartile. E.P.S. growth (4.0%) has been lower quartile. Equity growth (-2.8%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, CVD Equipment’s stock price performance has been volatile and significantly below market. Between June, 2013 and April, 2024, CVD Equipment’s stock price fell -35%; relative to the market, this was a -80% loss. Significant price moves during the period: 1) March, 2023 – May, 2023: -51%; 2) June, 2022 – March, 2023: +237%; 3) January, 2020 – March, 2020: -51%; 4) November, 2017 – December, 2018: -72%; and 5) December, 2014 – May, 2016: -51%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -58.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -58.2% is lower quartile relative to CVD Equipment Corp Peer Group.
Current 5-year total return performance of 3.5% is substantially below median relative to the S&P 500 Composite.
Through February, 2024, with substantially below median current 5-year total return of 3.5% relative to S&P 500 Composite, CVD Equipment’s total return performance is at the lower quartile relative to CVD Equipment Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CVV’s overall valuation is quite low. Ratio of enterprise value/assets is near the lower quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to CVD Equipment Peer Group, CVV’s overall valuation is exceptionally low. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
CVD Equipment has a major value gap compared to the median. For CVV to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.38X to 2.76X. If CVV’s ratio of enterprise value/revenue were to rise to 2.76X, its stock price would be higher by $6 to $11.
For CVV to achieve upper quartile valuation relative to the CVD Equipment Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.38X to 4.15X. If CVV’s ratio of enterprise value/revenue were to rise to 4.15X, its stock price would increase by $11 from the current level of $5.43.
VALUE TARGETS
CVV is expected to be a modest Value Eraser reflecting capital returns that are forecasted to fall short of the cost of capital.
CVD Equipment’s current Price Target of $3 represents a -41% change from the current price of $5.43.
CVD Equipment’s very low appreciation potential results in an appreciation score of 14 (86% of the universe has greater appreciation potential.)
Reinforcing this low Appreciation Score of 14, the low Power Rating of 22 contributes to an Value Trend Rating of F.
CVD Equipment’s current Price Target is $3 (-42% from the 2022 Target of $5 and -41% from the 04/10/24 price of $5.43). This dramatic fall in the Target is the result of a -12% decrease in the equity base and a -33% decrease in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 4.0% — below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2021 peak of 16%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is well below the 2017 peak of 7%.
PTR’s cost of equity forecast is 5.1% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well below the 2021 peak of 11.6%.
At CVD Equipment’s current price of $5.43, investors are placing a positive value of $1 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 10.1% versus a cost of equity of 8.4%.
PTR’s 2024 Price Target of $3 is based on these forecasts and reflects an estimated value of existing assets of $5 and a value of future investments of $-2.
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