Hurricane Florence Impact on U.S. Economy

By Mark Bern, CFA

Early Estimates

Five days ago estimates of damage from the hurricane were as high as $170 billion.  Now I am reading estimates that are more in the range of $20 billion in storm related damage.  That figure could go up or down depending on how much rain the storm drops in any given area.  There has already been considerable flooding in North Carolina and more is expected  there and in the western areas of Virginia as the storm moves inland.

Much of the damage will be to residential properties and autos.  To put the $20 billion estimate in damage into perspective we need to compare it to the damage done by other major storms.  See the table below:

 Source: Business Insider

So, unless the damage is much worse than the more recent expectations it should create a significant drag on the economy.  In the ensuing months (and sometimes years) storms may tend to increase economic activity in certain industries such as new and used car sales to replace those caught in the floods and home repairs/materials to replace and repair damages by wind and flooding. 

Restraurants chains in the affected areas could take a blow but probably not as much as might be expected.  With all the evacuations there will could be a surge in people eating out as they travel to get out of the storms way and take up temporary living quarters. 

One of my favorite companies is Cracker Barrel Old Country Store (CBRL) which has about 10% of its restaruants in the Carolinas.  But only a small number of its outlets are likely to be in the flood area, so I would expect the company to clean things up fairly quickly.  The company is very well managed and generates excellent free cash flow.  However, I would not suggest buying shares until after the company reports its earnings which are scheduled for release on September 18^th.  It will be the forward guidance that will be of greatest interest.  I am hoping for enough of a negative vibe that shares fall and provide a better entry point.  I believe it will turn out to be a very good long-term holding for conservative investors looking for a good dividend yield that is apt to rise annually for many years.

Our Friedrich algorithm likes it as evidenced by all the green in the table below:

Source: Friedrich Global Research

Now, when you look at our quantitative chart below you see that CBRL tends to lag its estimated value (Main Street Price).  But you should also notice that the stock has done extremely well for investors who bought it at the end of 2009, climbing 408% in nine years.  I don’t expect a repeat of that explosive growth, but I do like the 3.3% current dividend yield and its prospects to increase.

Source: Friedrich Global Research

Home Depot (HD) is another well run company that stands to benefit from the repairs that will be needed to buildings and houses throughout the devastated area. 

Notice the steady rising yellow line (Main Street Price or estimated value) and how well the white line (Wall Street Price or actual market price) correlates to it.  This is a nice steady climber selling at a price below our estimated value.