1. Flexsteel Industries Inc.
By Ari Lazar and Lerissa Li
February 23, 2016

2. Agenda Business Overview Company Profile Macroeconomic Overview
Industry Outlook
Financial Analysis
Projections
Valuation
Stock Market Prospects
Recommendation

3. Business Overview
“ Incorporated in 1929, Flexsteel is one of the oldest and largest manufacturer, importer and marketer of residential and commercial upholstered and wood furniture products in the United States. ”
Trademarks and Patents: Flexsteel Seat Spring, convertible beds
Manufacturing Facilities: Arkansas, California, Georgia, Iowa, Mississippi and Juarez, Mexico
Distribution Facilities: California, Indiana, Iowa, Kansas, Pennsylvania
Distribution Channels: 1,200 retail stores, hundreds of company- owned trucks, unparalleled logistical precision
3 new facilities in last quarter in Indiana, Pennsylvania, and Kansas
Sources: Company 10K and Company Website

4. Realized Rate of Return
Company Profile
NASDAQ: FLXS
Current Price: $41.53
52 Week Range: $ $48.67
Market Cap: $314.08M
P/E Ratio: 13.54
Forward P/E: N/A
Dividend Yield: 1.80%
EV/Revenue: 0.60x
EV/EBITDA: 8.30x
Realized Rate of Return
Feb 25, 2011 – Feb 22,2016
FLXS
NASDAQ
Sources: Yahoo Finance and Google Finance

5. Company CEO Karel Czanderna Became CEO July 2012
100% increase in stock price
Harvard Business School
B.A. Physics from Clarkson University
PHD Materials Science and Engineering from Cornell University
VP and General Manager of Portrait Photography Business at Eastman Kodak
Helped renovate technology to create new industry standard
VP of Cooking Products and Outdoor Kitchens at Whirlpool
Responsible for KitchenAid, Maytag, and Whirlpool branded appliances
Largest all-kitchen product launch in history of major appliance industry
Source: Bloomberg

6. Macroeconomic Overview
U.S. Fixed Mortgage Rate
Sources: Mortgage-X-.Com, Nasdaq.com, and Avondale.com (Avondale Asset Management)

7. Porter’s Five Analysis
Supplier
Bargaining Power
Low
Many offshore suppliers of
raw materials
Threat of Substitutes
High
Substitute: Second hand furniture
Threat of
New Entrants
Moderate
Simple industry
Scaling buffer
Rivalry
Moderate/High
Minimal product differentiation
Product saturation
Buyer
Substitute threat
Household Furniture Manufacturing
Can I say second hand furniture a substitute for this industry

8. Industry Revenue Outlook
Industry Outlook
The Household Furniture Manufacturing industry is cyclical
 As household incomes rise, US furniture manufacturers will leverage their competitive advantage in producing high-end goods
Industry manufacturers are expected to delve deeper into furniture customization over the next five years as a potential competitive advantage over foreign manufacturers
Industry Revenue Outlook
( $ in Million)
Source: IBIS World

9. SWOT and Risk Analysis Business Risks
Strengths
Hand made products
Blue Steel Spring Patent
No debt, high liquidity
3 new distribution centers
Long term outlook
Logistics network
Weaknesses
Limited pricing power
Competitors can copy products quickly
Opportunities
Few regulations
Constant innovation
Online sales growth
International Expansion
Increase in home buying (low interest rates)
Low commodity prices
Threats
Potential increase in price of raw materials (wood, steel)
Higher competition from large retailers
Increased restrictions on trade
Economic Slowdown
Business Risks
Loss of market share to larger retailers
Product liability if personal injury occurs
International operation risk
Exchange rate risk
Changes in commodity prices (Lumber)

10. Financial Analysis
Profitability
Liquidity
Greenblatt

11. DuPont Analysis DuPont Analysis ROE 8.7% 9.0% 11.9% 11.7% 2013 2014
2015
LTM
ROE
8.7%
9.0%
11.9%
11.7%
Tax Burden
63.0%
62.7%
Interest Burden
103.0%
106.8%
103.3%
101.8%
Operating Margin
5.2%
5.1%
7.4%
7.5%
Asset Turnover
2.0x
2.1x
1.9x
Equity Multiplier
1.3x

12. Relative Financial Analysis
*Ratios are based on companies’ LTM figures

13. Technical Analysis
Source: Yahoo Finance

14. Key Assumptions

15. Discount rate

16. DCF

17. Comparable Company Analysis

18. Industry Comparable Stats
Source: Morningstar

19. Stock Market Prospects
Attractive Growth Prospects
Low interest rates
3 new distribution centers
Graham implied growth rate
Modernizing business systems
Strong Growth, Profitability, and Returns (ROE, ROIC, ROA)
Mispriced by Market
Long Term Outlook
Management focuses on growth and efficiency not hitting quarterly numbers
No Debt
3 Competitors with no debt also have below average comps
Low Analyst Coverage
Only two analysts asked questions on their earnings call
Huge Discount to Peers

20. Portfolio Holdings Analysis
Company
Industry
Abbott Laboratories (ABT)
Medical Appliance & Equipment
AbbVie, Inc. (ABBV)
Drug Manufacture
Air Lease Corporation (AL)
Rental & Leasing service
Cal-Maine Foods, Inc. (CALM)
Food
Capital One Financial Corp. (COF)
Credit Service
Jack Henry Associates (JKHY)
Business Software
The Goodyear Tire & Rubber Company (GT)
Rubber plastic
Union Pacific Corporation (UNP)
Railroads
Walgreens Boots Alliance (WBA)
Drug store
Zix Corporation (ZIXI)
Application software
Flexsteel operates in the Home furnishings & Fixtures industry, which has little correlation with the current holdings in our portfolio.

21. Buy 300 Shares of Flexsteel Industries Inc. (FLXS) -NasdaqGS
Recommendation
Buy 300 Shares of Flexsteel Industries Inc. (FLXS) -NasdaqGS
@ Market Price
DCF Valuation
Relative Valuation
Implied Price
$48.61
$55.70
Weight
50%
Target Price
$52.16 (26% Premium)
Current Price
$41.53