TTEK Stock Study (4-20-23)

I recently did a stock study on Tetra Tech Inc. (TTEK) with a closing price of $140.77.

CFRA writes:

     > Tetra Tech, Inc. (TTEK) is a leading provider of consulting
     > and engineering services that focus on water, environment,
     > infrastructure, resource management, renewable energy, and
     > international development. TTEK typically begins at the
     > earliest stage of a project by identifying technical
     > solutions and developing execution plans tailored to
     > clients’ needs and resources. TTEK’s solutions may span
     > the entire life cycle of consulting and engineering
     > projects and include applied science, data analysis,
     > research, engineering, design, construction management,
     > and operations and maintenance.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 3.9% and 16.7% [’13 (d$0.03/share) and ’15 ($0.64/share) excluded to avoid artificial inflation of the growth rate]. Lines are mostly up, narrowing, and parallel except for sales dip in ’20 and the aforementioned EPS dip in ’15. PTPM has led peer and industry averages while trending up from 0.5% in ’13 to 10.0% in ’22 with a last-5-year average of 7.5%.

Over the last decade, ROE has also led peer and industry averages while trending up from 9.8% in ’14 (’13 was negative) to 21.5% in ’22 (last-5-year average: 17.5%). Having no long-term debt, Debt-to-Capital has been lower than peer and industry averages despite climbing from 17.2% in ’13 to 28.1% in ’22 with a last-5-year average of 26.8%.

From the latest quarter, Interest Coverage is 27.5 and Quick Ratio 1.2. Value Line assigns a B++ rating for Financial Strength.

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

• CNN Business projects 17.9% YOY and 15.0% per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• YF projects YOY 21.7% and 10.8% for ’23 and ’24, respectively (3 analysts).
• Zacks projects YOY 22.6% and 12.8% for ’23 and ’24, respectively (6).
• Value Line projects 7.8% annualized growth from ’22-’27.
• CFRA projects 8.9% YOY and 9.2% per year for ’23 and ’22-’24, respectively.

I am forecasting just below the range.

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

• CNN Business projects 11.3% YOY and 12.4% per year for ’23 and ’22-’24, respectively (based on 4 analysts), along with 5-year annualized at 16.0%.
• MarketWatch projects 13.6% and 7.2% per year for ’22-’24 and ’22-’25 (6 analysts).
• Nasdaq.com projects 19.5% YOY for ’24 (1).
• YF projects YOY 11.6% and 12.7% for ’23 and ’24, respectively (4), along with 5-year annualized growth at 4.9%.
• Zacks projects YOY 11.6% and 19.5% for ’23 and ’24, respectively (7).
• Value Line projects 16.6% annualized growth from ’22-’27.
• CFRA projects 12.4% YOY and 10.7% per year for ’23 and ’22-’24, along with a 3-year projected CAGR of 14%.

I am forecasting toward the lower end of the long-term-estimate range (mean of three: 12.5%).

My Forecast High P/E is 27. Since ’14, high P/E has ranged from 18.6 (’14) to 43.5 (’15) with a last-5-year mean of 33.6 (9-year median = 30.7). Except for ’15, this has gradually been trending higher. I am forecasting at the last-5-year average P/E.

My Forecast Low P/E is 17. Since ’14, low P/E has ranged from 13.8 (’14) to 35.9 (’15) with a last-5-year average of 20.5. Except for ’15, this has gradually been trending higher. I am forecasting toward the lower end of the range [only ’14 and ’16 (16.1) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $98.60. This is 30.0% less than the previous close, 16.8% less than the 52-week low, and 3.5% above the 2021 low.

Since dividend was instituted in ’14, Payout Ratio has ranged from 17.4% in ’21 (excluding 8.4% in ’14) to 46.9% in ’15 with a last-5-year average of 18.5%. I am forecasting conservatively at 10%.

These inputs land TTEK in the HOLD zone with an U/D ratio of 1.9. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) is 5.4%, which is lower than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on [only] 41 studies done in the past 90 days (my study along with 15 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 5.5%, 10.0%, 29.6, 19.9, and 18.5%. I am lower on everything but sales growth. Value Line projects an average annual P/E of 23.5, which is less than MS (24.8) and higher than mine (22.0). MOS in the current study seems healthy.

With regard to other data, MS high and low EPS are $9.34/share and $5.59/share compared to my $8.13 and $5.80. My low EPS may be higher due to recent quarterly growth while my high EPS is lower due to a lower forecast growth rate. MS LSPF is $108.70 (10.2% higher than mine), which implies a Forecast Low P/E of 18.7. MS default LSPF is $5.80 * 19.9 = $115.42.

I would look to re-evaluate this stock under $128/share.