IBP Stock Study (3-20-23)

Posted by Mark on April 24, 2023 at 07:05 | Last modified: April 10, 2023 12:13

I recently did a stock study on Installed Building Products, Inc. (IBP) with a closing price of $103.72.

CFRA writes:

     > Installed Building Products, Inc., together with its subsidiaries,
     > engages in the installation of insulation, waterproofing, fire-
     > stopping, fireproofing, garage doors, rain gutters, window blinds,
     > shower doors, closet shelving and mirrors, and other products in
     > the continental United States. The company offers a range of
     > insulation materials, such as fiberglass and cellulose, and spray
     > foam insulation materials. It is also involved in the installation
     > of insulation and sealant materials in various areas of a structure,
     > which includes basement and crawl space, building envelope, attic,
     > and acoustical applications. In addition, the company installs a
     > range of caulk and sealant products that control air infiltration
     > in residential and commercial buildings; and waterproofing options,
     > including sheet and hot applied waterproofing membranes, as well
     > as deck coating, bentonite, and air and vapor systems. It serves
     > homebuilders, multi-family and commercial construction firms,
     > individual homeowners, and repair and remodeling contractors.

This medium-sized company has grown sales and earnings at annualized rates of 21.5% and 35.0% since 2012 and 2016 (earlier years with fractional EPS excluded to avoid artificial inflation of the the growth rate), respectively. Lines are mostly up, straight, and parallel except for the accelerated EPS growth in ’22. Over the last 10 years, PTPM has increased from 2.5% (’13) to 11.4% (’22) with a last-5-year average of 7.7%. This trails peer and industry averages.

Since ’15, ROE has led peer and industry averages, ranging from 21% (’17) to 48.4% (’22) with a last-5-year average of 33%. Debt-to-Capital has averaged 68.8% over the last five years, which is much higher than peer and industry averages. Interest Coverage is 8 and Quick Ratio is 1.91. Value Line gives IBP a B+ for Financial Strength.

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

• CNN Business projects contraction of 3.7% YOY and 1.9% for ’23 and ’22-’24, respectively (based on 10 analysts).
• YF projects YOY 14.4% growth and 0.5% contraction for ’23 and ’24, respectively (10 analysts).
• Zacks projects YOY 0.8% contraction and 1.2% growth for ’23 and ’24, respectively (4).
• Value Line projects 3.6% annualized growth from ’21-’27.
• CFRA projects 3.6% YOY contraction and 1.6% contraction per year for ’23 and ’22-’24, respectively (10).
• M* projects 6% contraction per year for the next two years.

With contraction projected for ’23[-’24], I am forecasting below the one long-term estimate available.

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

• CNN Business projects contraction of 10.9% YOY and 5.3% per year for ’23 and ’22-’24, respectively (based on 10 analysts) along with 5-year annualized growth of 22.1%.
• MarketWatch projects annualized 3.8% contraction and 3.5% growth for ’22-’24 and ’22-’25, respectively (10 analysts).
• Nasdaq.com projects 5.2% YOY contraction for ’24 (4).
• YF projects YOY 8.9% contraction and 0.5% growth for ’23 and ’24, respectively (9), along with 5-year annualized growth of 13.5%.
• Zacks projects YOY contraction of 5.7% and 5.1% growth for ’23 and ’24, respectively (4).
• Value Line projects annualized growth of 6% from ’21-’27.
• CFRA projects 3.5% YOY growth and 1.8% growth per year for ’23 and ’22-’24, respectively (11).

I am forecasting at the bottom of the long-term-estimate range (mean of three: 13.9%).

However, because EPS spiked 93% to $7.74/share in ’22, I do not feel comfortable projecting from the accelerated value. Projecting out six years from the ’21 EPS of $4.01/share results in $5.68/share, which is effectively -6% per year from the ’22 value projected out five years. This seems more reasonable to me.

Given that High (Low) Stock Price Forecast is a best- (worst-) case scenario, what to do with my conservatively-determined 6% forecast? One usually assumes growth and the other no growth.

As a conservative compromise, I will use EPS of $5.68 and $7.74 to determine the Low and High Stock Price Forecast. Compared to ’22, the former is effectively using negative growth while the latter is using zero growth. I am open to feedback from others regarding this approach.

My Forecast High P/E is 33. Since ’15, high P/E has ranged from 33.5 (’19) to 44.7 (’18) excluding the upside outlier of 61.1 in ’17. The last-5-year average is 42.4. I am forecasting below the range.

My Forecast Low P/E is 10. Since ’15, low P/E has ranged from 8.9 (’20) to 30.7 (’17) with a last-5-year average of 19.1. The former may be a downside outlier as the next-lowest value is 14.4 (’16 and ’19). I am forecasting toward the bottom of the range (only the ’20 value is lower).

My Low Stock Price Forecast (LSPF) is $56.80, which is 10 * $5.68/share. This is 45.2% less than the previous close and 18.3% less than the 52-week low: a print not seen since ’20.

The stock has paid a dividend since ’21. In two years, Payout Ratio has been 29.9% and 16.3%. I am forecasting low at 10%.

These inputs land IBP in the BUY zone with an U/D ratio of 3.2. Total Annualized Return is 20.1%.

PAR (using Forecast Average, not High, P/E) is 10.4%, which is a bit lower than I prefer. I feel like I have built a substantial margin of safety (MOS) into this study, though.

In an attempt to verify that, I look to Member Sentiment (MS) averages of 146 studies (mine excluded) done in the last 90 days. Forecast High P/E and Forecast Low P/E are 28.7 and 15.5, respectively. Value Line projects an average annual P/E of 17.5, which is much lower than MS (22.1) and me (21.5). No consensus MOS there.

For projected sales and EPS growth, MS averages 11.6% and 12.5%, respectively. This is much higher than my forecasts, but I don’t regard this as meaningful because I project from different starting points. MS average high EPS and low EPS are $13.03 and $5.77, respectively. The former is much higher than my $7.74 along with Value Line’s projected EPS of $10.95. The latter is very close to my $5.68. I do see substantial MOS here.

Overall, perhaps I have some MOS backing this study albeit not as much as I thought.

MS also projects a higher Payout Ratio (17.7%) than me along with a much higher Low Stock Price Forecast ($79.83). Using the latter would easily put the stock in the BUY zone. As is, it’s just near the threshold.

Nonlinear historical EPS growth along with sparse long-term analyst estimates make for a very challenging stock study!

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