MEDP Stock Study (3-28-23)

I recently did a stock study on Medpace Holdings Inc. (MEDP) with a closing price of $183.26.

CFRA writes:

     > Medpace Holdings, Inc. provides clinical research-based drug and
     > medical device development services in North America, Europe, and
     > Asia. It offers a suite of services supporting the clinical development
     > process from Phase I to Phase IV in various therapeutic areas. The
     > company also provides clinical development services to the
     > pharmaceutical, biotechnology, and medical device industries; and
     > development plan design, coordinated central laboratory, project
     > management, regulatory affairs, clinical monitoring, data management
     > and analysis, pharmacovigilance new drug application submissions, and
     > post-marketing clinical support services. In addition, it offers bio-
     > analytical laboratory services, clinical human pharmacology, imaging
     > services, and electrocardiography reading support for clinical trials.

This medium-sized company has grown sales and earnings at annualized rates of 21.3% and 30.1% (excluding NMF, $0.11, $0.37, and $0.98/share in ’14-’17, respectively, which if included would boost this number higher) for the last 10 years. Lines are up, straight, and parallel since ’15. PTPM was 14.3% in ’13 before dipping negative and recovering over the following three years. Since ’17, PTPM has increased from 13.1% to 19.4% with a last-5-year average of 16.6%. For the last 10 years, PTPM is about equal with the industry while trailing its peers as neither of the latter two suffered the ’14-’17 dip.

ROE increased from 2.5% in ’16 (initial ROE value on record) to 19.3% in ’21 before catapulting to 64.7% in ’22 (upside outlier). The last-5-year average (excluding ’22) is 15.7%, and as a whole this leads peer and industry averages—both of which cratered in ’17 (possibly due to TCJA). Debt-to-Capital declined from 47.8% in ’15 to 5.9% in ’19 before reversing higher to 32.8% in ’22. Overall, this is much lower than peer and industry averages. The last-5-year average is 15%. M* reports a Quick Ratio of 0.35, which [deserves a bit more digging and] on its own would be somewhat concerning. Value Line assigns a Financial Strength rating of B++ despite the company having no long-term debt.

I forecast long-term annualized sales growth of 11% based on the following:

• CNN Business projects 13.3% YOY and 12.5% per year for ’23 and ’22-’24, respectively (based on 3 analysts).
• YF projects YOY 17.3% and 13% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 16.7% and 14.1% for ’23 and ’24, respectively (2).
• Value Line projects 12% annualized growth from ’22-’27.
• CFRA projects 17.3% YOY and 15.1% per year for ’23 and ’22-’24, respectively (5).
• M* offers a 2-year ACE of 15% per year.

I am forecasting below the range.

I forecast long-term annualized EPS growth of 10% based on the following:

• CNN Business reports ACE of 6.6% YOY and 11.5% per year for ’23 and ’22-’24, respectively (based on 3 analysts), along with 5-year annualized growth of 12%.
• MarketWatch projects annualized growth of 13.9% and 15.1% for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 17.1% YOY for ’24 (2).
• YF projects YOY 6.6% and 16.6% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 14.2%.
• Zacks projects YOY 5.4% and 17% for ’23 and ’24, respectively (2).
• Value Line projects 10.4% annualized growth from ’22-’27.
• CFRA projects 11.5% YOY and 14.7% per year for ’23 and ’22-’24, respectively (2).

I am forecasting below the three-long-term-estimate range (mean 12.2%).

My Forecast High P/E is 32. Excluding the upside outlier in ’16 (105.2), over the last six years high P/E has ranged from 32.4 in ’22 to 48 in ’21 with a last-5-year average of 37. I am forecasting below the range.

My Forecast Low P/E is 16. Excluding the upside outlier in ’16 (71.7), over the last six years low P/E has ranged from 15.3 in ’20 to 27.2 in ’21 with a last-5-year average of 18.8. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast is the default value of $117.10. This is 36.1% less than the previous closing price and 7.7% less than the ’22 low.

These inputs land MEDP in the HOLD zone with an U/D ratio of 2.9. The Total Annualized Return (TAR) is 15.4%.

PAR (using Forecast Average, not High, P/E) is 9%. This is less than I want to see from a medium-sized company. If the margin of safety (MOS) is strong enough, then I can ignore PAR in favor of TAR.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 170 studies over the past 90 days (mine excluded), averages for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 15.9%, 15.6%, 31.8 and 18.9, respectively. I am significantly lower on growth rates and also lower on P/E range. MS high and low EPS are $14.75 and $6.69 compared to my $11.72 and $7.32. My low EPS may be greater than MS due the latest quarterly earnings release, and my high EPS is less due to a lower forecast growth rate. MS has a Low Stock Price Forecast of $125.38, which is 7.1% higher than mine.

As just suggested, my forecast average annual P/E (24) is just below MS (25.4) even though my Forecast High P/E is higher. Value Line projects much lower at 20. This is where I question the Value Line numbers. Going back in the statistical array, average annual P/E for ’19-’22 are 25.5, 27, 37.3, and 22.9. Looking back to the M* data I used, these same values are 25.3 (difference of -0.2), 27.3 (+0.3), 37.6 (+0.3), and 24.9 (+2.0). Unlike a few other companies on which I have run this analysis, Value Line here only understates by a mean of 0.6, which is not significant. My higher P/E range therefore offsets MOS created by my lower forecast growth rates.

I was uncharacteristically stretching with the P/E forecasts. Given my initial Forecast Low P/E, the Low Stock Price Forecast came up extremely far below the previous close. I therefore increased as high as I could while still maintaining justification to call it conservative.

Although MEDP is a BUY under $181, I may look for an even lower entry price to compensate for the lack of MOS. An additional reason to demand MOS in this study is uncertainty due to the lower number of analysts contributing to the above-cited projections and the lower number of long-term projections themselves.

CBRE Stock Study (3-27-23)

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $68.86.

Value Line writes:

     > CBRE Group, Inc. is a worldwide commercial real estate firm,
     > offering services to occupiers, owners, lenders, and investors
     > in the office, retail, industrial, and multi-family segments
     > of the market. Provides facilities management, leasing,
     > property, sales, mortgage origination, investment management,
     > and valuation services.

This large-sized company has grown sales and earnings at annualized rates of 17.8% and 18%, respectively, for the last 10 years. Lines are mostly up, straight, and parallel except for sales in ’20 and EPS in both ’20 and ’22. PTPM has trended slightly lower over the last 10 years while slightly edging out peer and industry averages. Its last-5-year average is 6.1%.

Aside from a downside outlier in ’20 (11.4%), ROE has remained between 17-23% over the last 10 years while beating peer and industry averages; last-5-year average is 19.2%. Debt-to-Capital has generally trended lower over the last decade from 56.8% in ’13 to 30.8% in ’22 while tracking higher than peer and industry averages; last-5-year average is 35.6%. Per Value Line, Interest Coverage is 25 and Financial Strength gets a rating of A. M* assigns a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 3% based on the following:

• CNN Business projects 4.2% YOY and 5.7% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 4.1% and 7.1% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY growth of 4% and 7.7% for ’23 and ’24, respectively (3).
• Value Line projects 3.9% annualized growth from ’21-’27.
• CFRA projects 2.3% YOY and 4.9% for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 4.2% per year along with its own analyst estimate of 4.9% annualized for the next 10 years.

I am forecasting below the range.

I forecast long-term annualized EPS growth of 4% based on the following:

• CNN Business reports ACE of a 10.2% contraction and 2.9% growth per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 11%.
• MarketWatch projects annualized growth of 4.6% and 7% for ’22-’24 and ’22-’25, respectively (11 analysts).
• Nasdaq.com projects annualized growth of 18.4% and 17.7% for ’23-’25 and ’23-’26, respectively [4, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 12.1% contraction and 16.6% growth for ’23 and ’24, respectively (9), along with 11% annualized growth for the next five years.
• Zacks projects YOY 12.1% contraction and 20.6% growth for ’23 and ’24, respectively (4).
• Value Line projects 3.2% annualized growth from ’22-’27.
• CFRA projects 11.3% YOY contraction and 0.1% growth per year for ’23 and ’22-’24, respectively, along with 3-year projected CAGR of 1%.
• Morningstar offers a long-term growth estimate of 12% per year.

I am forecasting near the bottom of the four-long-term-estimate range (mean 9.3%).

My Forecast High P/E is 18. Excluding the upside outlier in ’20 (30.5), high P/E has gone from 28.3 in ’13 to 16.3 in ’18 and ’19 before rebounding to 25.9 in ’22 with a last-5-year average (excluding ’20) of 19.7. I am forecasting near the low end of the range (only ’18 and ’19 are lower).

My Forecast Low P/E is 12. Low P/E has gone from 21 in ’13 to 10 in ’19 before rebounding to 15.5 in ’22. The last-5-year average is 12.3. My forecast is lower than all but ’19 and ’21 (10.9).

My Low Stock Price Forecast is the default value of $51.20. This is 25.6% less than the previous closing price and 12.8% less than the ’21 low.

These inputs land CBRE in the HOLD zone with an U/D ratio of 1.4. The Total Annualized Return (TAR) is 6.4%.

PAR (using Forecast Average, not High, P/E) is 2.6%. This is too low for me to invest.

To assess margin of safety (MOS) in this study, I like to compare inputs with those of Member Sentiment (MS). Based on 73 studies over the past 90 days (mine excluded), averages for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.2%, 9.2%, 20.7 and 13.4, respectively. I am lower across the board—especially on growth rates. MS high and low EPS are $7.45 and $3.91, respectively, compared to my $5.22 and $4.27. My low EPS may be greater due to a the latest quarterly earnings release, but my high EPS is less than MS due to a lower forecast growth rate. MS has a Low Stock Price Forecast of $50.38, which is close to mine. Overall, I think the MOS in this study is robust.

When I last studied this stock on 1/22/23, I called for a 10% discount to $76 as a buy point. My inputs went from 5%, 5%, 16, and 10 in January to 3%, 4%, 18, and 12 now. Despite getting that 10% selloff, I am still looking for another 10% discount to reach my BUY zone under $61.90/share.

While this may seem puzzling, I want to spend today’s extra time discussing study pliability. As an example consider the Value Line long-term estimate in the left-margin table [I don’t use this because I feel it’s watered down with too much actual data]: 8.5% growth between ’19-’21 and ’26-’28. The statistical array says ’20 and ’26-’28 correspond to $3.27 EPS/share and $6.50, respectively: 10.3% annualized growth. If I use the mean of ’19, ’20, and ’21 ($4.26 EPS/share) for ’20, then I get 6.2% annualized growth. That 8.5% is in the middle of 6.2% and 10.3%, yet I can’t pinpoint exactly where it comes from.

In generating my growth forecasts, I like to estimate conservatively near the lower end or just below the range altogether. I just illustrated how two legitimate approaches to calculation result in estimates ~4% apart. Were that the lower threshold, my forecast could vary by that amount.

In calculating growth rates from analyst estimates, I like to anchor the range with an actual result to reduce uncertainty. I therefore start with the column to the left of Value Line’s bold font. For the current CBRE report, this is [inexplicably] ’21 [CBRE has an estimate earnings date (per Nasdaq.com) of 5/2/23, which suggests the final 2022 earnings announcement was around 2/2/23 or two weeks before the report date. That should be enough time to be included here!]. I think of the ’26-’28 column as ’27 [technically it could be ’26 or ’28, which adds more potential variance to the mix]. My preferred forecast is therefore $5.80 to $6.50 over six years for a 1.9% annualized growth rate.

Again, moving the starting point forward demonstrates the aforementioned pliability. Given a completed ’22, the calculation is $5.55 to $6.50 over five years for a 3.2% growth rate. Going from ’23 to ’26-’28 would be $5.05 (projected) to $6.50 over four years or a 6.5% growth rate. None of these are that left-margin-table 8.5% and once again, we see how changing the starting year can result in variation over 4%.

Despite the pliability, my conservative approach brings me comfort. Basing my forecast on the mean (in the middle rather than at the low end of the range) estimate would increase stability if I were willing to sacrifice MOS. I prefer the latter.

MRK Stock Study (3-14-23)

I recently did a stock study on Merck & Co., Inc. (MRK) with a closing price of $105.00.

Value Line writes:

     > Merck & Co., Inc. is a global health care company that delivers
     > innovative health solutions through its prescription medicines,
     > vaccines, biologic therapies, and animal health products.
     > Operations comprised of two segments: Pharmaceutical (88% of
     > total sales) and Animal Health (12%). Top-grossing franchises
     > in 2021 included Keytruda (oncology), Januvia (diabetes),
     > Gardasil (vaccine), ProQuad (vaccine), and Bridion (hospital
     > acute care). Acquired Acceleron Pharma (11/21).

This mega-sized (annual revenue > $50B) company has grown sales and earnings at rates of 3.2% and 13.1% per year, respectively, over the last 10 years. I hesitate to call MRK a “high-quality growth stock” because lines are not particularly up, straight, and parallel. YOY sales were down in ’14 and ’15. YOY EPS were down in ’15, ’16, ’17 (perhaps due to TCJA), and ’20.

Excluding an upside outlier in ’14 (40.9%), PTPM has increased over the last decade from 12.6% (’13) to 27.7% (’22) with a last-5-year average of 23.9%. This trails peer and industry averages.

Over the last decade, ROE has increased from 9.1% to 32.6% with a last-5-year average of 29.1%. This is lower than peer and industry averages. Debt-to-Capital has increased from 33.5% (’13) to 55.7% (’20) before declining to 40% (’22) with a last-5-year average of 48.2%: slightly less than peer and industry averages. Interest Coverage is 18 and Quick Ratio is 0.93. Value Line rates the company A for Financial Strength and M* describes the balance sheet as “sound” while assigning a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 3% based on the following:

• CNN Business projects a 2% YOY contraction and 1.9% growth per year for ’23 and ’22-’24, respectively (based on 23 analysts).
• YF projects YOY 1.8% contraction and 6.2% growth for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 1.3% contraction and 6.8% growth for ’23 and ’24, respectively (6).
• Value Line projects 4.6% annualized growth from ’21-’26.
• CFRA projects a 1.2% YOY contraction and 5% growth per year for ’23 and ’22-’24, respectively (6).
• M* gives a 2-year ACE of 1.9% growth per year while also projecting 6% per year x5 years in its analyst report.

I am forecasting below the two longer-term estimates.

I forecast long-term annualized EPS growth of 7% based on the following:

• CNN Business projects a 7.8% YOY contraction and 7% growth per year for ’23 and ’22-’24, respectively (based on 23 analysts) along with a 5-year annualized growth rate of 11.5%.
• MarketWatch projects annualized growth of 7.7% and 8.8% for ’22-’24 and ’22-’25, respectively (23 analysts).
• Nasdaq.com projects annualized growth of 18.6% and 14.9% for ’23-’25 and ’23-’26, respectively (10, 5, and 3 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 9.8%.
• YF projects YOY 8% contraction and 25% growth for ’23 and ’24, respectively (19), along with 5-year annualized growth of 10.5%.
• Zacks projects YOY 8% contraction and 25% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 8%.
• Value Line projects annualized growth of 8.4% from ’21-’26.
• CFRA projects a 7.4% YOY contraction and 9.3% growth per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 9%.
• M* projects an annualized long-term growth rate of 7.3%.

I am projecting just below the entire range (mean of six long-term estimates: 9.3%).

My Forecast High P/E is 18. Excluding the upside outlier in ’17 (73.2), high P/E has ranged from 14.6 (’14) to 44.3 (’16) with a last-5-year average of 25.3. I am forecasting toward the bottom of the range (only the ’14 value is lower).

My Forecast Low P/E is 13. Excluding the upside outlier in ’17 (58.8), low P/E has ranged from 11.6 (’14) to 32.4 (’16) with a last-5-year average of 17.8. I am forecasting toward the bottom of the range (only the ’14 value is lower).

My Low Stock Price Forecast is the default value of $74.20. This is 29.3% less than the previous closing price, 4% less than the 52-week low of $77.3, and 1.8% higher than the ’22 low.

Payout Ratio in the last 10 years has ranged from 42.5% in ’14 to 131.2% in ’16 (excluding upside outlier of 217.2% in ’17) with a last-5-year average of 67.5%. I am estimating conservatively at 40%.

These inputs land MRK in the HOLD zone with an U/D ratio of 1.2. The Total Annualized Return (TAR) is 8.6%.

TAR is decent for a large-sized company, but PAR (using Forecast Average, not High, P/E) is only 5.8%. A good margin of safety (MOS) will give me more confidence in the former as a reasonable target.

For this assessment, I compare my forecasts with those of Member Sentiment (MS). Out of 399 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 5.7%, 8.4%, 25.7, 22.1, and 96.3%, respectively. I am lower across the board [I think something is seriously awry with the 96.3% but that would be a whole other discussion] thereby suggesting a robust MOS in this study.

Value Line projects an average annual P/E of 14, which is much lower than MS (23.9) and even lower than mine (15.5). Upon closer look, though, some discrepancy exists between M* and Value Line’s P/E ratios. Looking at M*’s mean high/low P/E versus Value Line’s average annual P/E (statistical array), for ’18-’22 reveals the following: 27.4 vs. 14.8, 20.6 vs. 15.9, 27 vs. 13.6, and 17.0 vs. 12.9. In other words, the mean difference over these four years is 8.7 points in favor of M*. Since I used M* data to determine my forecasts, maybe I should compare my 15.5 with 14 + 8.7 = 22.7 for Value Line as an apples-to-apples comparison. Not only does this preserve my MOS, it would seem to exaggerate it!

In either case, MRK seems to be fully-valued right now. I would look to re-evaluate below $91/share.

AL Stock Study (3-13-23)

I recently did a stock study on Air Lease Corp. (AL) with a closing price of $39.25.

Value Line writes:

     > Air Lease Corp. engages in the purchase and leasing of
     > commercial jet transport aircraft to airlines worldwide.
     > It sells aircraft from its operating lease portfolio to
     > third parties, including other leasing companies,
     > financial services companies, and airlines.

Over the last 10 years, this medium-sized company has grown sales 11.1% per year. Earnings have grown 11.3% per year from ’13-’21. The company posted a loss of $1.24/share in ’22 due to aircraft in Russia. From the 2022 10-K:

     > In response to the sanctions, in March 2022 we terminated
     > all of our leasing activities in Russia, consisting of 24
     > aircraft in our owned fleet, eight aircraft in our managed
     > fleet and the leasing activity relating to 29 aircraft that
     > that had not yet delivered from our orderbook, all of which
     > have been subsequently placed. In the first quarter of
     > 2022, we also canceled five aircraft in our orderbook that
     > were slated for delivery in Russia.
     >
     > While we or the respective managed platform maintain title
     > to the aircraft, we determined that it is unlikely we or
     > they will regain possession of the aircraft that are
     > detained in Russia. As a result, we recorded a write-off of
     > our interests in our owned and managed aircraft that are
     > detained in Russia, totaling approximately $802.4 million
     > for the three months ended March 31, 2022. The 21 aircraft
     > that remained in Russia were removed from our fleet as of
     > March 31, 2022.

Sans write-off, I calculate ’22 earnings at $5.67/share rather than -$1.24. For purposes of 5-year projections below, I will lean conservatively and discount by just over 20% to get $4.50/share as my initial value.

Excluding ’22, sales are up and mostly straight while earnings peaked in ’19 (excluding ’17 when EPS was up ~100% YOY due to TCJA) and have been falling slightly ever since. PTPM went from 34.2% in ’13 to 40.9% in ’16 and has fallen every year since to 25.9% in ’21 for a last-5-year average (excluding ’22) of 33.2%, which is higher than peer and industry averages.

ROE went from 7.5% in ’13 to 11.4% in ’18 (’17 excluded due to TCJA) before falling to 6.2% in ’21 for a last-5-year average (excluding ’22) of 9.1%. This is slightly better than peer averages and mostly lower than the industry.

Debt-to-Capital has averaged 71.8% over the last five years, which is lower than peer and industry averages but still uncomfortably high. M* lists Interest Coverage as an ominous -1.61: first time I have seen a negative number on this metric. Current and Quick Ratio are ~0.9 and FCF has been negative since at least ’20.

Despite these red flags, M Ramirez writes in a SA article:

     > The main negative point for the market is that Air Lease is
     > a finance company and as such needs a lot of debt to operate
     > on a large scale with the assets it holds. Leverage is
     > currently high (about 2.5 debt/equity), although in no case
     > is the amount of debt greater than the total value of the
     > company’s assets… although a priori the debt seems exorbitant,
     > the company finances more than 95% of the debt at a fixed rate
     > (…close to 3%), which, together with the high predictability
     > of its cash flows, makes it practically impossible for the
     > company to go bankrupt. The company could stop aircraft
     > purchases for 5 years and with the cash flows repay half of
     > the debt without increasing rents to the lessees.

I forecast long-term annualized sales growth of 11% based on the following:

• CNN Business projects 13% YOY and 16.1% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 14.4% and 16.8% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 13.8% and 17.3% for ’23 and ’24, respectively (3).
• CFRA projects growth of 15.2% YOY and 16% per year for ’23 and ’22-’24, respectively (5).
• M* gives an ACE of 16.8% per year for the next two years.

I am extrapolating out to five years with a forecast lower than all estimates except ’22-’24 CNN Business.

I forecast long-term annualized EPS growth of 96.4% based on the following:

• CNN Business projects 14% YOY and 19.7% per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 22.7%.
• MarketWatch projects 19.7% and 17% per year for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects 13.1% YOY and 20.1% per year for ’23 and ’22-’24, respectively (4 and 3 analysts for ’23 and ’24).
• Seeking Alpha projects 4-year annualized growth of 24.4%.
• YF projects 24.1% YOY growth for ’23 (5) along with 5-year annualized growth of 26.2%.
• Zacks projects 27.5% YOY for ’23 (3) along with 5-year annualized growth of 22.7%.
• Value Line projects 16.5% annualized from ’21 to ’23/’24 and offers a 5-year-annualized ACE of 16.9%.
• CFRA projects growth of 18% YOY and 26.8% per year for ’23 and ’22-’24, respectively (1).

I am forecasting 15% growth—below the entire range of five long-term estimates (mean 22.5%)—and using $4.50/share in ’22 (see above) as my base. This results in future EPS of $9.04/share.

In order to project from ’22 on the website, I need to recalculate based on the trendline at $0.30 and enter a 96.4% growth rate to end up at $8.72/share (98% growth rate overshoots to $9.08/share; we’ll just say “user error” as the reason this didn’t end up as 97%, but it’s even more conservative this way).

My Forecast High P/E is 8. From ’13-’21, high P/E ranged from 7.2 (’17) to 18.6 (’13) with a last-5-year average of 11.7. I am forecasting near the bottom of the range (only the ’17 value is lower).

My Forecast Low P/E is 6. Excluding the downside outlier in ’20 (1.9), from ’15-’21 low P/E ranged from 5.0 (’17) to 14.6 (’14) with a last-5-year average of 7.4. I am forecasting near the bottom (using the aforementioned $4.50/share rather than TTM).

My Low Stock Price Forecast is $27. This is 6 * $4.50: 31.2% below the previous close and 9.4% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 4.8% (’17) to 18.6% (’21) with a last-5-year average of 13.1% (2022’s NMF excluded). I am forecasting conservatively at 5%.

These inputs land AL in the HOLD zone with an U/D ratio of 2.5. The Total Annualized Return (TAR) is 12.8%.

Total annualized return (TAR) of 12.8% is acceptable for a medium-sized company, but PAR (using Forecast Average, not High, P/E) is lower at 9.9%. Can I believe in the former?

To answer this, I compare my inputs with Member Sentiment (MS). Out of 226 studies over the past 90 days [my own and 20 other studies with high EPS > $40/share excluded (18 of these were 4 digits or more)], projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 11.7%, 31.9%, 11.6, 7.7, and 8.2%, respectively. I’m lower on P/E range and Payout Ratio. My sales growth forecast is the same. The 31.9% projected EPS growth along with the MS [average] high EPS of $4.65 suggest most people are not acknowledging ’22 as a one-time loss since it alone is less than ’22 EPS sans write-off. Low EPS is another head-scratcher as many studies have negative values. From my perspective, recording a loss on the Russian airplane fleet is the epitome of an extraordinary item; how can that possibly be used to represent zero growth five years hence short of the write-off being repeated each and every year?

Based on these observations, I perceive a robust margin of safety in this study and would be a buyer under $37/share.

AEIS Stock Study (2-23-23)

I recently did a stock study on Advanced Energies Industries Inc. (AEIS) with a closing price of $92.45.

Value Line writes:

     > Advanced Energy Industries, Inc. develops and produces power
     > conversion and control systems that are used by manufacturers
     > of semiconductors and in industrial thin-film manufacturing
     > processes. The largest customer is Applied Materials,
     > accounting for approximately 20% of total sales in 2021.

Over the last 10 years, this medium-sized company has grown sales and earnings at annualized rates of 16.4% and 17%, respectively. Lines are mostly up while displaying some cyclicality (’14 sales not exceeded until ’17 and ’18 EPS not exceeded until ’22 with ’19 and ’21 showing YOY declines). PTPM over the last 10 years traces an inverse-U shape while trending slightly higher from 2.6% in ’13 to 13.1% in ’22. The last-5-year average is 13.4%, which beats peer and industry averages.

The historical ROE profile is similar, going from 7.7% in ’13 to 20.2% in ’22. The last-5-year average is 17.2%, which is roughly on par with peer and industry averages (both of which show a 2016 excursion below -400%). Debt-to-Capital was zero before ’19 and has averaged 35.6% in the last four years since FASB Accounting Standards Update 2016-02 [requires leases to be recorded on the balance sheet]. This is lower than peer and industry averages. Quick Ratio is 1.93.

CFRA writes, “AEIS’s balance sheet is in a good spot, with $459M in cash, net cash of $69M, and low leverage (debt-to-EBITDA of 1.2x). AEIS has no debt maturities until September 2024.”

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects a 5.6% YOY contraction and zero growth for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 8.8% contraction and 8.4% growth for ’23 and ’24, respectively (8).
• Zacks projects YOY 4.4% contraction and 5.7% growth for ’23 and ’24, respectively (3).
• Value Line projects 8.6% annualized growth from ’21-’26.
• CFRA projects 8.6% YOY contraction and annualized contraction of 0.1% for ’23 and ’22-’24, respectively.

With only one longer-term estimate and unknown recovery mechanics after ’23, I am forecasting a bit light.

I forecast long-term annualized EPS growth of 10% based on the following:

• CNN Business projects a 28.8% YOY contraction and 3.7% contraction per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 2.9% annualized contraction and 14.2% annualized growth for ’22-’24 and ’22-’25 (9 analysts).
• Nasdaq.com projects 23.2% YOY growth for ’24 (4).
• Seeking Alpha projects 4-year annualized growth of 28.3%.
• YF projects YOY 28.8% contraction and 30.1% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 10%.
• Zacks projects 25% YOY contraction and 21.2% YOY growth for ’23 and ’24, respectively (4).
• Value Line projects annualized growth of 12.8% from ’21-’26.
• CFRA projects 27.7% YOY contraction and annualized contraction of 3.1% for ’23 and ’22-’24, respectively, along with 3-year CAGR of 18%.

The four longer-term estimates average 16%. With 12.8% being the low end of the range, I’d like to use 12% but I’m going even lower since ’22 was up 39% YOY (especially given a sales growth projection of only 6%).

My Forecast High P/E is 22. Over the last 10 years, high P/E has ranged from 14.8 (’15) to 49.2 (upside outlier in ’19) with a last-5-year average (excluding the outlier) of 26.2. Four out of the last 9 years have high P/E less than my forecast.

My Forecast Low P/E is 12. Over the last 10 years, low P/E has ranged from 8.3 (’16) to 27.7 (’19) with a last-5-year average of 16.7. Four out of the last 10 years have low P/E less than my forecast.

My Low Stock Price Forecast is $64.30 (default): 30.4% beneath the previous close and 4.7% less than the 52-week low.

The dividend history is only two years with Payout Ratios of 11.4% and 7.5%. I am forecasting 7%.

These inputs land AEIS in the BUY zone with an U/D ratio of 3.4. The Total Annualized Return (TAR) is 15.8%.

TAR would be a stellar return for a medium-sized company, but margin of safety (MOS) determines whether I can believe in that or need to settle for PAR (using Forecast Average, not High, P/E) 10.1% as my future expectation.

Looking at Member Sentiment (MS), out of only 22 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.6%, 16.2%, 22.8, 13.5, and 5.4%, respectively [MS is really buying into increasing profit margins (EPS growth > sales growth)!]. My forecasts are lower for all inputs except Payout Ratio. Many people don’t think the dividend will continue. Value Line projects an average annual P/E of 18, which is just below MS (18.2) and slightly above mine (17).

My Low Stock Price Forecast is in line with MS ($64.13). Overall, MOS seems robust in this study.

AEIS is a competitor of MKSI on which I have previously done a First Cut. If I can believe in the semiconductor recovery [yes!], then I can definitely believe in this stock.

Agilent Stock Study (2-22-23)

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $143.42.

M* writes:

     > Originally spun out of Hewlett-Packard in 1999, Agilent has
     > evolved into a leading life sciences and diagnostics firm.
     > Today, Agilent’s measurement technologies serve a broad base
     > of customers with its three operating segments: life science
     > and applied tools, cross lab (consisting of consumables and
     > services related to its life science and applied tools), and
     > diagnostics and genomics. Over half of its sales are generated
     > from the biopharmaceutical, chemical, and advanced materials
     > end markets, but it also supports clinical lab, environmental,
     > forensics, food, academic, and government-related organizations.

Since 2015, this medium-sized company has grown sales and earnings at annualized rates of 7.8% and 19.3%, respectively. Lines are mostly up and straight except for EPS declines in ’18 and ’20. Over the last 10 years (excluding ’17), PTPM has trended higher from 11.9% in ’15 to 22% in ’22 with a last-5-year average of 19.3%. This leads peer and industry averages.

ROE has also trended higher from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%. This is slightly ahead of peer and industry averages. Interest Coverage is 18 and Quick Ratio is 1.32. Value Line gives Agilent an A rating for Financial Strength and M* rates them Exemplary on Capital Allocation including “its sound balance sheet management.”

I forecast long-term annualized sales growth of 6% based on the following:

• CNN Business projects 2.9% YOY and 5% per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 2.3% and 7.2% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 1.6% and 7.2% for ’23 and ’24, respectively (5).
• Value Line projects 7.2% annualized from ’22-’27.
• CFRA projects 2.1% YOY and 5.3% per year for ’23 and ’22-’24, respectively.
• M* projects 6% annualized from ’22-’26 in analyst note and gives 2-year ACE of 4.9%.

I forecast long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 8.6% YOY and 9.9% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 11.6% and 11.7% per year for ’22-’24 and ’22-’25, respectively (18 analysts).
• Nasdaq.com projects 9.9% YOY and 10.5% per year for ’24 and ’23-’25 (8, 6, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 16%.
• YF projects YOY 8.2% and 11.7% for ’23 and ’24, respectively (14), along with 5-year annualized growth of 13.5%.
• Zacks projects YOY 8.6% and 9.7% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 10%.
• Value Line projects annualized growth of 11.9% from ’22-’27.
• CFRA projects 8.4% YOY and 10.2% per year for ’23 and ’22-’24, respectively, along with 3-year [NB: not a long-term estimate] CAGR of 31%.
• M* projects 9% annualized from ’22-’26 in its analyst note and gives long-term ACE of 9% as well.

I am forecasting at the low end of the [six] long-term estimate[s] range [mean 12.2%].

My Forecast High P/E is 32. Since ’15, High P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 39.1. I am projecting lower than all values except ’19.

My Forecast Low P/E is 23. Since ’15, Low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 24.5. I could go with 20 and project lower than all values except ’19 but instead, I am projecting lower than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast is the default $95.90. This is 33.1% below the previous closing price and 7.2% below the ’21 low.

Since ’15, Payout Ratio has ranged from 19.5% (’19) to 61.4% (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 22.6%. I am projecting to the low side [at 19%] even though Value Line says positive things about the company’s ability to raise the dividend.

These inputs land A in the HOLD zone with an U/D ratio of 1.3. The Total Annualized Return (TAR) is 8.1%.

With TAR a bit lower than I would like for a medium-sized company, PAR (using Forecast Average, not High P/E) is definitely too low at 5%. This is not a huge surprise with the stock up almost 79% over the last three years.

I like to add more context to my studies by comparing my inputs to Member Sentiment (MS). Out of only 30 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 6.3%, 9.4%, 34.2, 25.1, and 28.9%, respectively. I am lower on all inputs. My P/E range is more than two points lower, but Value Line projects an average annual P/E that is even lower at 25 (vs. 27.5). I don’t think margin of safety in this study is anything to write home about.

My Low Stock Price Forecast is a tad higher than MS $92.78. See my comments on this in the Forecast Low P/E section.

M* categorizes Agilent with a wide economic moat, which is an alluring reason to buy. If we can get a 15% stock selloff, then I’ll be in line to do just that.

TTC Stock Study (2-22-23)

I recently did a stock study on The Toro Co. (TTC) with a closing price of $111.22.

M* writes:

     > The Toro Co manufactures turf maintenance and landscaping equipment. The
     > company produces reel and rotary riding products, trim cutting and walking
     > mowers, greens rollers, turf sprayer equipment, underground irrigation
     > systems, heavy-duty walk-behind mowers, and sprinkler systems used for
     > professional turf and landscape maintenance and construction… The company
     > also produces snow plowers and ice management products.

This medium-sized company has grown sales and earnings at annualized rates of 8.8% and 13%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel without a single YOY decline. Over the last decade, PTPM has been stable ranging from 10.3% in ’19 to 14.2% in ’18 with a last-5-year average of 12.3%. This is roughly even with peer averages while leading industry averages.

ROE has trended slightly lower over the last decade going from 39.3% in ’13 to 34% in ’22 with a last-5-year average of 33.9%. This is dramatically better than peer and industry averages. Debt-to-Capital has been consistent with a last-5-year average of 40.9%. This is slightly higher than peer and industry averages. Interest Coverage is 16, which is reassuring, while Quick Ratio is a lukewarm 0.49. Value Line rates the company B++ for Financial Strength.

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 11.1% YOY and 8.5% per year for ’23 and ’22-’24, respectively (based on 3 analysts).
• YF projects YOY growth of 10.2% and 7.1% for ’23 and ’24, respectively (4 analysts).
• Zacks projects YOY 11.1% and 8.4% for ’23 and ’24, respectively (1).
• Value Line projects 7.4% annualized from ’22-’26.
• CFRA projects 7.4% YOY and 7.4% per year for ’23 and ’22-’24, respectively.

I’m forecasting near the bottom of the range.

I forecast long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 16.9% YOY and 15.6% per year for ’23 and ’22-’24, respectively (based on 3 analysts), along with 5-year annualized growth of 10.2%.
• MarketWatch projects 16% and 15% per year for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 14.9% and 14.1% per year for ’23-’25 and ’23-’26, respectively (1).
• YF projects YOY 16.9% and 14.3% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 10.2%.
• Zacks projects YOY 17.9% and 15.2% for ’23 and ’24, respectively (1).
• Value Line projects annualized growth of 9.3% from ’22-’26.
• CFRA projects 14.8% YOY and 13.2% growth per year for ’23 and ’22-’24, respectively.

I am projecting below the average [of three] long-term estimate[s] (9.9%).

My Forecast High P/E is 21. Over the last 10 years, high P/E has ranged from 21.4 (’15) to 31.3 (’21) with a last-5-year average of 28.8. I expect this to cool down at some point.

My Forecast Low P/E is 15. Over the last 10 years, low P/E has ranged from 15.4 (’13) to 21.7 (’21) with a last-5-year average of 19.7. I expect this to fall as time goes on.

My Low Stock Price Forecast is the default value of $63.10. This is 43.2% below the previous closing price and 12.2% below the 52-week low.

The lowest Payout Ratio in the last 10 years was 21.4% (’13) and the last-5-year average is 31.4%. I am forecasting 26%, which is lower than nine of the 10 years.

These inputs land TTC in the HOLD zone with an U/D ratio of 0.9. The Total Annualized Return (TAR) is 7.2%.

With TAR being lower than I seek for a medium-sized company, the more-conservative PAR (using Forecast average, not High, P/E) will certainly be too low. It currently sits at 2.8%. A good margin of safety (MOS) will give me more confidence in this stock study even though it may not convince me to invest right now.

Member Sentiment (MS) reveals that out of [only] 37 studies over the past 90 days (my own excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 7.7%, 9.3%, 27.4, 19, and 30.5%, respectively. My inputs are all lower. My P/E range is significantly lower (mean 18.0 versus 23.2) although Value Line projects the same average annual P/E that I do.

MS has an average Low Stock Price Forecast of 72.6, which is 15% above mine. This would improve my U/D ratio, but I feel comfortable with the P/E range selected.

All in all, I appear to have at least a small margin of safety built into this study. I would look to re-evaluate (with a focus on PAR) the stock on a cross below $85/share.

FWRD Stock Study (2-21-23)

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $107.39.

M* writes:

     > Forward Air Corp is an asset-light freight and logistics company. The
     > company’s operating segment includes Expedited Freight and Intermodal.
     > It generates maximum revenue from the Expedited Freight segment.
     > Expedited Freight segment operates a comprehensive national network to
     > provide expedited regional, inter-regional and national LTL (less-than-
     > truckload) services. It also offers customers local pick-up and delivery
     > and other services including final mile, truckload, shipment consolidation
     > and deconsolidation, warehousing, customs brokerage, and other handling.

This medium-sized company has grown sales and earnings at annualized rates of 11.5% and 14.9% over the last 10 years, respectively. This excludes sharp EPS dips in ’16 and ’20. Lines are mostly up and parallel except for sales decline in ’20 and, in addition to the EPS dips just mentioned, additional dips in ’15 and ’19. Over the last 10 years, PTPM has ranged from 5.5% (’20) to 13.2% (’22) with a last-5-year average of 9.1%. This beats peer and industry averages.

ROE has trended higher over the last decade from 12.9% in ’13 to 27.8% in ’22 with a last-5-year average of 17.8%. This trails peer and industry averages. Debt-to-Capital has gone from 0% in ’13 to 28.2% in ’22 with a last-5-year average of 26%. This is lower than peer and industry averages.

Despite Interest Coverage of 58 and Quick Ratio at 1.64, Value Line gives FWRD a B++ for Financial Strength. To this analyst, that seems as bit low given Total Debt of $126M and TTM FCF of $199M but hey… I’ve only been doing this for five months.

I forecast long-term annualized sales growth of 2% based on the following:

• CNN Business projects 5% YOY contraction and flat growth for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY 1.6% contraction and 4.7% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 0.5% contraction and 1.8% growth for ’23 and ’24, respectively (3).
• Value Line projects 3.1% annualized growth from ’21-’27.
• CFRA projects 1.6% YOY contraction and 1.8% growth per year for ’23 and ’22-’24, respectively (6).

Given contraction being projected for ’23, I am forecasting low.

I forecast long-term annualized EPS growth of 7% based on the following:

• CNN Business projects 9.2% YOY contraction and 0.3% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 8%.
• MarketWatch projects contraction of 12.7% YOY and 1.7% per year for ’23 and ’22-’24, respectively (9 analysts).
• Nasdaq.com projects annualized growth of 2.4% from ’23-’25 (5).
• Seeking Alpha projects 4-year annualized growth of 8%.
• YF projects YOY 10% contraction and 10.5% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 13.2%.
• Zacks projects YOY 3.3% contraction and 4.9% growth for ’23 and ’24, respectively (3).
• Value Line projects annualized growth of 7.4% from ’21-’27.
• CFRA projects 9.5% YOY contraction and 2.1% growth per year for ’23 and ’22-’24, respectively (8).

I am forecasting conservatively just below the long-term-estimate range [7.4% – 13.2%, mean 8.5%]. Despite the large discrepancy between sales and EPS growth rates, I think the latter impacts this analysis much more than the former.

My Forecast High P/E is 20. High P/E has gone up and down from 25.2 in ’13 to 17.6 in ’22 with a last-5-year average of 27.1. Only the ’22 value is lower than my projection.

My Forecast Low P/E is 11. Low P/E has also gone up and down from 19.9 in ’13 to 11.8 in ’22 with a last-5-year average of 16.7. I am projecting conservatively below the entire range.

My Low Stock Price Forecast is the default value of $78.50. This is 26.9% below the previous close, below the 52-week low of $84, and 9.6% above the ’21 low stock price.

Over the last 10 years, the lowest Payout Ratio was 13.4% in ’22. The last-5-year average is 23.4%. My estimate is toward the lower end of the range at 15%.

These inputs land FWRD in the BUY zone with an U/D ratio of 3.2. The Total Annualized Return (TAR) is 14%, but PAR (using Forecast Average, not High, P/E) is borderline low for me at 8.6%.

To assess margin of safety (MOS) in the study, I compare my inputs with those of Member Sentiment (MS). Out of 90 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 8.2%, 9.2%, 24.5, 16.8, and 26.3%, respectively. I am lower across the board. Value Line projects an average annual P/E of 23, which is higher than MS (20.7) and much higher than me (15.5).

The robust MOS gives me the confidence needed to base my decision on the more aggressive TAR [rather than PAR].

One puzzling detail is the lower Low Stock Price Forecast ($73.23) by MS despite a higher Forecast Low P/E (16.8 vs. 11). Perhaps TTM EPS was significantly different when MS studies were done. This is not indicated in the table.

SBUX Stock Study (2-20-23)

I recently did a stock study on Starbucks Corp. (SBUX) with a closing price of $107.10.

Value Line writes: “Starbucks Corp. is the leading retailer, roaster, and brand of specialty coffee in the world. Sells whole bean coffees through its specialty sales group, mail-order business, supermarkets, and online.”

This large-sized company has grown sales and earnings at annualized rates of 8% and 10.9% over the last 10 and nine years, respectively. The latter excludes ’13 (EPS of $0.01 artificially exaggerates historical growth rate) and ’20 (downside outlier due to COVID-19 that results in a 6.1% historical growth rate if included). Lines are mostly up and straight. Sales declined in ’20; EPS fell in ’19 and ’22.

Excluding ’13 and ’20, PTPM has trended slightly down over the years especially with 13.1% in ’22. The last-5-year average at 17.9% is better than industry averages but worse than the one listed peer: MCD.

ROE over the last five years has averaged 0.6% and has been [significantly] negative for the last three. ROE in 2021 was -61.4%. The industry average ROE has been negative four out of the last six years, though, so this is not atypical. Earnings are positive, which means shareholders’ equity must not be. I haven’t seen this before.

Debt-to-Capital increased from 22.5% in ’13 to 41.9% in ’17—all below peer and industry averages. This jumped to 89% in ’18 and has since been in triple-digit percentages and above peer and industry averages. Along with the negative ROE, this is a red flag for me. On the positive side, Interest Coverage is over 9, M* gives SBUX an Exemplary rating for Capital Allocation (including a “sound balance sheet” with “manageable debt load”), and Value Line gives an A++ rating for Financial Strength.

In looking at the 2021 10-K, long-term debt, operating lease liability, and deferred revenue are the largest balance-sheet contributions. As discussed here, the latter is a deal made in late ’18 that allows Nestle to market, sell, and distribute SBUX consumer packaged goods. SBUX was paid an upfront royalty of $6.7B that will be recorded as other revenue for 40 years. This means the deferred revenue liability will decrease by ~$175M per year for the next 38 years. As long as SBUX stays in business, said liability is basically not a concern [and without said liability, shareholders’ equity would be positive].

I forecast long-term annualized sales growth of 9% based on the following:

• CNN Business projects 11.1% YOY and 11.4% per year for ’23 and ’22-’24, respectively (based on 27 analysts).
• YF projects YOY 11.4% and 11.7% for ’23 and ’24, respectively (27 analysts).
• Zacks projects YOY 11.3% and 11.2% for ’23 and ’24, respectively (10).
• Value Line projects 8.3% annualized growth for ’22-’27.
• CFRA projects 12.3% YOY and 11.7% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year annualized estimate of 11.5% and estimates 9% per year through 2032 in its analyst report.

I am projecting toward the lower end of the range.

I forecast long-term annualized EPS growth of 14% based on the following:

• CNN Business projects 14.5% YOY and 17.3% per year for ’23 and ’22-’24, respectively (based on 27 analysts), along with a 5-year annualized rate of 18%.
• MarketWatch projects annualized rates of 19.1% and 18.3% for ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects 19.6% YOY and 18.3% per year for ’24 and ’23-’25, respectively (13, 13, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 17.5%.
• YF projects YOY 14.9% and 20% for ’23 and ’24, respectively (29), along with a 5-year annualized rate of 18%.
• Zacks projects YOY 15.2% and 19.7% for ’23 and ’24, respectively (13), along with a 5-year annualized rate of 17.2%.
• Value Line projects 14.6% annualized growth from ’22-’27.
• CFRA projects 16.2% YOY and 17.1% per year for ’23 and ’22-’24 along with 3-year annualized growth of 43%.
• M* gives an annualized long-term ACE of 17.7% and projects 15% long-term growth in an analyst report.

I am forecasting less than all seven long-term estimates (mean: 16.9%).

The CFRA 3-year projection of 43% begs for some discussion. It’s obviously an extreme upside outlier. In these stock studies, I have the option of projecting from the last quarterly data point (default), previous completed annual data point, or trendline. I often wonder if the analysts make the same decision on their end. I wouldn’t default to a soft quarterly in thinking the slowdown to be isolated and transient. If I did, though, then an explosive growth rate would need to be implemented to catch up to the long-term trend. 43% suggests that CFRA may be using ’22 (-20.1% YOY) as a base in need of catch-up.

Unless stated otherwise, I assume analyst long-term projections to be based off the last data point available. If anyone out there disagrees, then please let me know!

My Forecast High P/E is 28. Excluding ’13 (7784) and ’20 (119), high P/E over the last 10 years has ranged from 19.1 in ’18 (possibly a downside outlier) to 41.6 in ’22 with a last-5-year average of 32.6. Excluding ’18, the lowest value was 30.4 (’14). I expect this to come down over time.

My Forecast Low P/E is 18. Excluding ’13 (4427) and ’20 (63), low P/E over the last 10 years has ranged from 14.6 in ’18 (possibly a downside outlier) to 27.7 in ’16 with a last-5-year average of 20.4. Excluding ’18, the lowest value was 18.7 (’19). I expect this to come down over time.

My Low Stock Price Forecast (LSPF) is $57.60. Rather than defaulting to the soft TTM EPS ($2.87), I am using the trendline $3.26 value. While this raises the LSPF from $51.7, the result is still [almost unreasonably low being] 46% below the previous closing price. The 2020 low stock price was $50.02, and the 52-week low is $68.40.

The lowest Payout Ratio in the last 10 years was 35.2% (’15) and the last-5-year average (excluding the upside outlier in ’20) is 52.1%. I am forecasting conservatively at 35%.

These inputs land SBUX in the HOLD zone with an U/D ratio of 1.0. The Total Annualized Return (TAR) is 8.9%.

I end up with a PAR (based on Forecast Average, not High, P/E) of 5%, which is less than I want to see.

How likely is performance to meet or exceed TAR?

To answer that, I compare my inputs with Member Sentiment (MS). Out of roughly 460 studies over the past 90 days (my own and numerous other studies excluded for invalid inputs including Payout Ratios over 1500% and Forecast Low P/E over 800), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.7%, 12.8%, 31.8, 22.8, and 61.2%, respectively. I’m lower on all inputs except EPS growth (14%). Value Line projects an average annual P/E of 26, which is lower than MS (27.3) and higher than mine (23).

MS average LSPF is $62.14, which is higher than mine. Anecdotally, this is reversed from most of my studies. This batch of MS data seems to have a lot of quirky data.

Although my study leans conservative, the stock remains hot enough to burn my tongue. I will wait for the price to cool under $82 before reevaluating the stock.

EFX Stock Study (2-17-23)

I recently did a stock study on Equifax Inc. (EFX) with a closing price of $213.00.

M* writes:

     > Along with Experian and TransUnion, Equifax is one of the
     > leading credit bureaus in the United States. Equifax’s credit
     > reports provide credit histories on millions of consumers,
     > and the firm’s services are critical to lenders’ credit
     > decisions. In addition, about a third of the firm’s revenue
     > comes from workforce solutions, which provides income
     > verification and employer human resources services.

This medium-sized company has grown sales and earnings at annualized rates of 9.3% and 7.6% over the last 10 years, respectively. This excludes ’19 for EPS: a downside outlier (-$3.30/share due to $1.13B in expenses from a 2017 cybersecurity incident). Lines are mostly up, straight, and parallel except for EPS dips in ’18 and ’22. PTPM was stable around 23% for ’13-’17 before diving in ’18-’19 and has been recovering since. The last-5-year average (excluding the outlier) is 16.1%, which beats peer and industry averages.

Historical ROE looks similar to PTPM with a last-5-year average of 16.5% (excluding ’19). This is lower than peer and industry averages. Debt-to-Capital has increased from 38.5% (’13) to 59.4% (’22) with a last-5-year average of 55.9%. Interest Coverage is 6.5 and Quick Ratio is 0.54. While these may raise some concern, Value Line rates the company A for financial strength and M* describes the balance sheet as “sound” while awarding an Exemplary rating for capital allocation.

I forecast long-term annualized sales growth of 6% based on the following:

• CNN Business projects 3.9% YOY and 7.6% per year for ’23 and ’22-’24, respectively (based on 19 analysts).
• YF projects YOY 3.9% and 10.1% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 4.2% and 9.2% for ’23 and ’24, respectively (10).
• Value Line projects 6.4% annualized growth from ’21-’27.
• CFRA projects 3.9% YOY and 6.7% per year for ’23 and ’22-’24, respectively (6).
• M* gives a 2-year ACE of 7.7% annualized while also estimating 9% per year for the next five years in its analyst report.

I am projecting toward the low side.

I forecast long-term annualized EPS growth of 8% based on the following:

• CNN Business projects a 4.6% YOY contraction and 9.6% growth per year for ’23 and ’22-’24, respectively (based on 19 analysts) along with 5-year annualized growth of 10.1%.
• MarketWatch projects annualized growth of 9.8% and 10.2% for ’22-’24 and ’22-’25, respectively (22 analysts).
• Nasdaq.com projects annualized growth of 23.6% and 20% for ’23-’25 and ’23-’26, respectively (10, 6, and 3 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 9.7%.
• YF projects YOY 5% contraction and 26.3% growth for ’23 and ’24, respectively (16), along with 5-year annualized growth of 12.7%.
• Zacks projects YOY 3.4% contraction and 24.4% growth for ’23 and ’24, respectively (15), along with 5-year annualized growth of 14.4%.
• Value Line projects annualized growth of 7.1% from ’21-’27.
• CFRA projects 3.7% YOY contraction and 12.2% growth per year for ’23 and ’22-’24, respectively (7), along with 16% growth per year from ’21-’24.
• M* projects an annualized long-term growth rate of 12.8%.

I am projecting below the average [of six] long-term estimate[s] (11.1%).

My Forecast High P/E is 35. Excluding NMF in ’19, high P/E has trended up from 25.9 (’13) to 52.2 with a last-5-year average of 51.1.

My Forecast Low P/E is 25. Excluding ’19, low P/E has trended up from 19.6 (’13) to 25.8 (22) with a last-5-year average of 28.2.

My Low Stock Price Forecast is the default $141.30: just below the 52-week low of $146 and 33.7% below the previous close.

The lowest Payout Ratio in the last 10 years (excluding ’19 when the dividend was suspended due to one-time expenses) was 25.9% (’21) and the last-5-year average is 38.4%. I am estimating conservatively at 25%.

These inputs land EFX in the HOLD zone with an U/D ratio of 1.1. The Total Annualized Return (TAR) is 7.1%.

TAR is less than I want for a medium-sized company, which means the more conservative PAR (using Forecast Average, not High, P/E) will certainly be too low. The latter currently sits at 4%.

I like to assess margin of safety by comparing my inputs with Member Sentiment (MS). Out of [only] 22 studies over the past 90 days (my own excluded), projected sales, projected EPS, forecast High P/E, forecast Low P/E, and Payout Ratio average 6.3%, 11%, 34.1, 23.3, and 36.3%, respectively. My P/E range is actually higher than MS although my EPS growth rate is lower. Value Line projects an average annual P/E of 25, which is lower than MS (28.7) and much lower than mine (30).

M* writes:

     > …we are maintaining our fair value estimate of $315. This equates to a
     > 2023 price/adjusted earnings ratio of approximately 43 times and a 2024
     > price/adjusted earnings ratio of approximately 31 times. While these
     > multiples might seem high, we believe they are warranted, given Equifax’s
     > unique position in income and employment verification services.

I don’t agree that the premium is warranted, but I have somehow ended up assigning one anyway. Lowering my P/E range would move EFX even farther from the Buy zone.

I’ve done 82 stock studies to date and never been higher with my forecast P/E range. That this happened at all makes me want to scrap the whole study even though I felt the forecasts were conservative when I chose them.

I will repeat this again next quarter.