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TGT Stock Study (4-19-23)

Posted by on May 12, 2023 at 06:54 | Last modified: April 19, 2023 14:56

I recently did a stock study on Target Corp. (TGT) with a closing price of $162.40.

CFRA writes:

     > Incorporated in 1902 and headquartered in Minneapolis, Target
     > Corporation is one of the largest retailers in the U.S. As of
     > January 29, 2022, the company operated 1,926 Target locations
     > in the U.S. with 243.3 million square feet of floor space, up
     > from 1,897 stores with 241.6 million square feet of floor
     > space twelve months earlier. Target currently has stores in
     > all 50 states and the District of Columbia. Its stores
     > generally cater to middle- and upper-income consumers,
     > carrying a broad assortment of fashion apparel, electronics,
     > home furnishings, household products, and other general
     > merchandise. Target.com offers a more extensive selection of
     > merchandise than the company’s physical stores, including
     > exclusive online products.

This mega-sized company (revenue > $50B) has grown sales and earnings at annualized rates of 4.9% and 11.9% over the last 10 years, respectively. Lines are mostly up except for dips in sales (’16) and EPS (’16 and ’22). PTPM led peer and industry averages throughout the decade despite a horrible ’22 contributing to a last-5-year average of 5.5%.

ROE also led peer and industry averages over the last 10 years, increasing from 12.0% (’13) to 25.0% in ’22 and posting a last 5-year average of 31.9%. Debt-to-Capital was higher than industry averages, increasing from 45.9% (’13) to 62.9% (’22) with a last-5-year average of 55.7%. Quick Ratio is chronically low (0.20 in the last quarter), but Interest Coverage is 8.2. Value Line gives a B++ rating for Financial Strength while M* assigns an Exemplary rating for Capital Allocation.

With regard to the EPS dip [crash: down 57.6% YOY] in ’22, Value Line writes:

     > Followers of this story will recall that the bottom line last year
     > was torpedoed when management announced a serious inventory
     > bloat would be worked down by across-the-board discounting.
     > Shortly thereafter, a clearance run event was held to get
     > shoppers to spend at the tail end of the holiday season, thus
     > again clearing inventory space for items geared toward warmer
     > weather. The end result was a sharp drop in profitability and
     > a full-year earnings figure of just $5.98 a share.

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

I am forecasting conservatively.

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

I am suspicious when I see a big YOY change accompanied by diametrically-opposed estimates like we have here. The opposing long-term estimates are d4.9% (“d” signifies a negative number) and d7.5% vs. 25.1% and 14.9%. I assume the time frames to be identical, but what if they’re not?

Value Line illustrates this clearly. Year-by-year EPS for TGT is $13.56 in ’21 (actual), $5.98 in ’22 (actual), $8.50 in ’23 (projected), and $10.60 in ’24 (projected). A 2-year projected growth rate is either d33.6% or 33.1% depending on whether I start from ’21 or ’22. Both numbers are “projected” since the 2-year interval carries into the future.

Since Target’s fiscal year ends in January, I must be clear on how the different data sources are labeling in order to ensure valid comparisons. Zacks and Nasdaq.com label “current year” as 1/24. MarketWatch says “TGT will report 2024 earnings on 02/28/2023,” which is complete nonsense [should be 2022 not 2024], and lists ’23 as the first year of data without stating whether that is actual or projected. CNN Business labels ’23 and ’24 with “analyst forecast” and ’22 with “reported earnings.” Furthermore, with CNN Business and MarketWatch both reporting FactSet data and the latter’s ’25 number equal to the former’s ’24, I can apply deduction to clarify. CFRA labels ’24 and beyond as “estimated” and indicates Jan as FY end [as an aside, based on the CFRA quarterly EPS matrix with the full year summed in the rightmost column, the 3-year projected CAGR must go from $13.56 in ’22 to $11.48 in ’25 to get d5.4% or d5% rounded. This is one year of historical data and two years projected, which makes “3-year projected CAGR” somewhat of a misnomer]. Value Line includes a footnote stating “Fiscal year ends Sat. nearest Jan. 31st of following cal. year.” This announces the FY ending in ’23 will be labeled as ’22 (the bold font is also helpful to indicate projected versus actual data).

Unfortunately, YF and Seeking Alpha do not specify the long-term projection interval. I would normally assume this, but with two alarmingly negative estimates I want to be sure. Seeing MarketWatch and Nasdaq.com project significant gains one, two, and three years ahead along with Value Line’s $18.30 projection for ’26-’28, it seems nearly impossible for YF and Seeking Alpha to have negative long-term estimates unless they have indeed slid the time interval back one year to begin with $13.56. This would be in error with the next completed FY available, but I cannot prove it.

What I therefore have are six long-term estimates with a mean of 6.9% per year [13.4% with the negative estimates excluded]. I am nearly cutting that in half [4%] due to the uncertainty, and I absolutely do not feel comfortable with my common practice of forecasting below the range since I feel something is amiss.

So why did I enter 14% EPS growth when I am actually forecasting 4%?

My Forecast High P/E is 16. Over the last 10 years, high P/E has ranged from 14.8 (’17) to 42.6 (upside outlier in ’22) with a last-5-year average (excluding the outlier) of 19.8. I am forecasting near the bottom of the range (only ’17 is lower).

Since data sources are clear in projecting a rebound over the next couple years, I am overriding projection from the last annual EPS ($5.98/share) to the trendline ($9.52/share). Failure to do this would result in a projected high future price less than the current stock price [INVALID]. The override results in $11.58/share and is roughly equivalent ($11.51/share) to projecting from the last annual EPS with a 14% per year growth rate. In an attempt to be consistent with other stock studies, I am substituting the latter.

My Forecast Low P/E is 11. Over the last 10 years, low P/E has ranged from 9.1 (’17) to 22.9 (’22). Low P/E has been lower than 14.2 in every year since ’14, which makes the 22.9 somewhat of an upside outlier. Excluding that, the last-5-year average is 11.0.

I cannot leave the TTM EPS default as the projection point since it exceeds the high EPS. I will override to the $9.52 trendline, which basically implies zero growth over the next five years.

My Low Stock Price Forecast (LSPF) is the default value of $104.70. This is 35.5% less than the previous close and 23.7% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 22.4% (’21) to 66.2% (’22). The last-5-year average is 41.3%. I am forecasting conservatively at 25.0%.

These inputs land TGT in the HOLD zone with an U/D ratio of 0.4. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) is 1.0%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 4.1% instead. Even that, though, is far less than I seek for a large-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 146 studies done in the past 90 days (my study along with 87 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 4.3%, 7.1%, 18.5, 11.0, and 40.6%. I am lower on projected sales growth and Payout Ratio. My Forecast Low P/E is equal and my Forecast High P/E is lower.

Other MS studies may or may not have applied the manual override, which I did in conjunction with the 14% projected EPS growth. MS high and low EPS [can help to clarify this and] are $9.18/share and $7.22/share compared to my $11.51 and $9.52. Even if my P/E range is a bit lower, my EPS range is higher thereby nullifying any MOS this study may have had.

MS LSPF of $86.50 (17.4% lower than mine) is about 10% higher than the default $7.22 * 11.0 = $79.42 and implies a Forecast Low P/E of 12.0.

TGT strikes me as somewhat of a mess right now! I would await prices under $124/share to re-evaluate. As time passes and we get a better picture of the company’s recovery, hopefully more certainty will resurface as well.

Categories: BetterInvesting® | Comments (0) | Permalink

DG Stock Study (4-18-23)

Posted by on May 10, 2023 at 06:22 | Last modified: April 18, 2023 09:56

I recently did a stock study on Dollar General Corp. (DG) with a closing price of $213.52.

M* writes:

     > A leading American discount retailer, Dollar General operates
     > over 18,000 stores in 47 states, selling branded and private-
     > label products across a wide variety of categories. In fiscal
     > 2021, 77% of net sales came from consumables (including paper
     > and cleaning products, packaged and perishable food, tobacco,
     > and health and beauty items), 12% from seasonal merchandise
     > (such as toys, greeting cards, decorations, and gardening
     > supplies), 7% from home products (for example, kitchen
     > supplies, small appliances, and cookware), and 4% from
     > apparel. Stores average roughly 7,400 square feet, and about
     > 75% of Dollar General locations are in towns of 20,000 or
     > fewer people. The firm emphasizes value, with most of its
     > items sold at everyday low prices of $5 or less.

This large-size company has grown sales and EPS at annualized rates of 9.1% and 16.1%, respectively, over the last decade. Lines are up, straight, and parallel except for an EPS dip in ’21. PTPM has led peer and industry averages while posting a last-5-year average of 8.6%.

Also beating peer and industry averages over the last 10 years is ROE. ROE has trended higher from 19.1% in ’13 to 39.2% in ’22 with a last-5-year average of 32.7%. Debt-to-Capital was lower than peer and industry averages until ’19 when it spiked higher and continues to increase. The last-5-year average is an uncomfortably high 61.4%. Despite a Quick Ratio of only 0.09, Interest Coverage is 15 and Value Line gives an A rating for Financial Strength.

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

I am forecasting below the range.

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

I am forecasting below the long-term-estimate range (mean of six: 9.3%).

My Forecast High P/E is 19. High P/E has trended higher over the last 10 years from 19.9 in ’13 to 24.6 in ’22 with a last-5-year average of 22.9. I am forecasting near the bottom of the range (only 18.8 in ’17 is lower).

My Forecast Low P/E is 14. Over the last 10 years, low P/E has ranged from 11.7 (’17) to 17.2 (’22) with a last-5-year average of 15.3. I am forecasting near the bottom of the range [’13 (13.7), ’17, and ’20 (11.8) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $139.50. This is 30.0% below the previous close, 18.4% less than the 52-week low, and 13.8% less than the ’21 low.

Since a dividend was first issued in ’15, Payout Ratio has ranged from 13.6% in ’20 to 22.6% in ’16. I am forecasting below the range at 13%.

These inputs land DG in the HOLD zone with an U/D ratio of 1.1. Total Annualized Return (TAR) is 6.6%.

PAR (using Forecast Average—not High—P/E) is 3.8%: too low for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 277 studies done in the past 90 days (83 outliers removed including the current study), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.0%, 9.9%, 21.3, 14.3, and 18.4%. I am lower across the board. Value Line projects a future average annual P/E of 20, which is higher than MS (17.8) and me (16.5).

With regard to other data, MS high and low EPS are $16.80/share and $9.87/share compared to my $14.98 and $10.68. 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 $146 (4.7% higher than mine). This is close to the default $9.87 * 14.3 = $141.14 [yay!].

With a robust MOS backing this study, I would look to re-evaluate under $183/share.

Categories: BetterInvesting® | Comments (0) | Permalink

ADBE Stock Study (5-3-23)

Posted by on May 9, 2023 at 07:20 | Last modified: May 3, 2023 09:59

I recently did a stock study on Adobe Inc. (ADBE) with a closing price of $368.66. The previous study I did on ADBE is here.

CFRA writes:

     > Adobe (ADBE) is the largest provider of applications used
     > to produce visual content, best known for its Creative
     > Cloud apps, Photoshop (#1 in photo editing, raster
     > graphics), Illustrator (#1 in drawing, vector graphics),
     > InDesign (#1 in page layout), and Premiere Pro (#1 in
     > video editing). Its apps are used by graphic designers,
     > photographers, publishers, video producers, animators,
     > and other creative professionals… ADBE’s apps are also
     > used by students, hobbyists, and part-time artists.

This large-size company has grown sales and EPS at annualized rates of 19.7% and 35.7% per year since 2013 and 2015 (previous two years of fractional EPS excluded), respectively. Lines are up, mostly straight, and parallel with the exception of an EPS dip in ’21 and nearly flat YOY EPS in ’22. PTPM over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 8.8% in ’13 to 34.1% in ’22 with a last-5-year average of 32.5%.

ROE over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 4.1% in ’13 to 32.7% in ’22 with a last-5-year average of 33.4%. Debt-to-Capital has been less than peer and industry averages going from 18.4% in ’13 to 24.8% in ’22 with a last-5-year average of 26.8%. Interest Coverage and Quick Ratio are 53.3 and 1.0, respectively. M* rates the company Exemplary for Capital Allocation while Value Line gives an A+ rating for Financial Strength.

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

I am forecasting below the long-term-estimate range.

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

I am forecasting below the long-term-estimate range (mean of six: 14.2%).

My Forecast High P/E is 35. High P/E has ranged from 47.9 (’16) to 141 (’14) over the last 10 years with a last-5-year average of 58.4. I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 23. Low P/E has ranged from 23.6 (’20) to 102 (upside outlier in ’14) with a last-5-year average of 31.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $233.50. This is 36.7% less than the previous closing price and 15.0% less than the 52-week low.

These inputs land ADBE in the HOLD zone with an U/D ratio of 1.7. The Total Annualized Return (TAR) is 10.2%. PAR (using Forecast Average—not High—P/E) is 6.1%. 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 565 studies done in the past 90 days (104 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 12.8%, 42.0, and 28.9. I am lower across the board. Value Line projects a future average annual P/E of 34.0, which is lower than MS (35.5) and higher than mine (29.0). MOS seems robust.

With regard to other data, MS high and low EPS are $18.64/share and $10.12/share compared to my $17.10 and $10.15. My high EPS is lower due to a lower forecast growth rate. The MS LSPF of $274.70 implies a Forecast Low P/E of 27.1 (vs. 28.9), is 6.4% less than the $10.15 * 28.9 = $293.34 default value, and is 15.0% higher than mine.

I would look to re-evaluate the stock under $324/share.

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QLYS Stock Study (4-17-23)

Posted by on May 8, 2023 at 06:38 | Last modified: April 17, 2023 14:37

I recently did a stock study on Qualys Inc. (QLYS) with a closing price of $128.55.

M* writes:

     > Qualys Inc. is a cloud security and compliance solutions
     > provider that helps businesses identify and manage their
     > security risks and compliance requirements. The California-
     > based company has more than 10,000 customers worldwide,
     > the majority of which are small- and medium-sized businesses.

Over the last 10 years, this small-size company has grown sales and EPS at annualized rates of 17.8% and 16.3% [my gut instinct is to exclude fractional EPS years of ’13, ’15, and ’16 that, if included, would inflate the annualized rate to 38.6%. Whether this is reasonable is a separate topic for discussion]. Lines are mostly up, straight, and parallel except for EPS spike in ’14 along with EPS dips in ’15 and ’21. PTPM generally trails industry averages but leads negative and declining peer averages [corrupt data, perhaps?] in rallying from 2.0% in ’13 to 27.3% in ’22 with a last-5-year average of 24.4%.

Over the last decade, ROE has also been lower than industry averages while leading peers in rallying from 1.6% in ’13 to 29.3% in ’22 with a last-5-year average of 20.2%. Having no long-term debt, Debt-to-Capital has been much lower than peers and lower than the industry, averaging 0.5% over the last five years (uncapitalized leases).

M* gives a “Standard” Capital Allocation rating while Value Line assigns a B+ for Financial Strength. Quick Ratio is 1.26.

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

I am forecasting conservatively.

I forecast 5% long-term annualized EPS growth based on the following:

I am forecasting just below the long-term-estimate range (mean of three: 7.9%).

I don’t give much weight to the shorter-term estimates but I do find CFRA’s upside outliers to be suspicious especially since they report 16 analysts. This is a huge spike and would doubtless command an outsized P/E.

My Forecast High P/E is 45. The lowest high P/E over the last 10 years was 50.3 in ’14. The last-5-year average is 65.9. The top of my comfort zone is closer to 30, but that results in an invalid (lower than previous close) projected high stock price.

Being a small company, perhaps QLYS still has years of supersized P/E remaining. I’ll have to watch this closely.

The current P/E is 46.6. I will discount that to the nearest 5-multiple as my Forecast High P/E. With 53.1 as the last-5-year average P/E, I could argue this as conservative.

My Forecast Low P/E is 28. The lowest low P/E over the last 10 years was 22.2 in ’14. The last-5-year average is 40.3. I am forecasting near the low end of the range (only ’14 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.30. This is 39.9% less than the previous close, 23.5% less than the 52-week low, and 14.4% less than the 2021 low.

These inputs land QLYS in the HOLD zone with an U/D ratio of 0.6. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) is -0.1%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on total annualized return instead. Even that, though, is far less than I seek for a small-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 184 studies done in the past 90 days (my study along with 48 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 12.0%, 54.4, and 35.7. I am lower across the board. MOS in this study seems robust.

With regard to other data, MS high and low EPS are $4.83/share and $2.51/share compared to my $3.50 and $2.76. 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 $87.60 (13.3% higher than mine). This is WAY higher than the default $4.83 * 54.4 = $262.75. $87.60 actually implies a Forecast Low P/E of 18.1.

I would look to re-evaluate this stock under $97/share.

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AMZN Stock Study (5-2-23)

Posted by on May 7, 2023 at 07:46 | Last modified: May 2, 2023 17:02

I recently did a stock study on Amazon.com, Inc. (AMZN) with a closing price of $102.05.

Value Line writes:

     > Amazon.com is the largest online retailer. The company
     > opened its virtual doors in 1995. Sales breakdown (2021):
     > North America; 59% of sales. International sales, 27% of
     > total. Amazon Web Services (AWS), 14%. Third-party sellers
     > (Marketplace) account for about 20% of sales. Seasonality:
     > Q4 accounted for 29% of ’21 revenue. Acquired Audible.com,
     > ’08, Zappos, ’09, Whole Foods Market, ’17.

This mega-size (> $50B) company has grown sales at an annualized rate of 25.8% over the last 10 years and EPS at an annualized rate of 50.7% from ’18-’21 excluding fractional EPS from ’13-’17 that skew the rate even higher. Also excluded is ’22 when the company lost $0.27/share due to its equity investment in Rivian (RIVN). According to the Seattle Times:

     > During the fourth quarter, Amazon said it faced a pretax
     > valuation loss of $2.3 billion from its investment in
     > RIVN… For the full year [2022], Amazon said it saw a
     > valuation loss of $12.7 billion from its investment in RIVN.
     > That’s compared with a gain of $11.8 billion in 2021.

With negative EPS for ’22, the earnings projections going forward are No Meaningful Figure (NMF) in some cases (e.g. over 100%) and something to screen closely for relevance.

Lines are mostly up and parallel except for EPS decline in ’22. PTPM has trended higher from 0.7% in ’13 to 8.1% in ’21 with a last-5-year average (excluding ’22) of 6.1%. This is slightly lower than the industry and roughly equal to peer averages.

ROE has trended up from 3.0% in ’13 to 27.4% in ’21 with a last-5-year average (excluding ’22) of 24.6%. Debt-to-Capital is slightly lower than peer and industry averages despite increasing from 34.7% in ’13 to 49.0% in ’22 with a last-5-year average of 48.1%. Although Interest Coverage is only 2.3 and the Current Ratio only 0.92, M* and Value Line give Exemplary and A++ ratings for Capital Allocation and Financial Strength, respectively. M* writes:

     > The balance sheet is sound with a net cash position and only modest
     > gross debt. We expect the balance sheet to remain sound as the
     > company has typically maintained a conservative balance sheet
     > and generates more than enough FCF from [Amazon Web Services]
     > and advertising to fund growth throughout the business.

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

I am forecasting conservatively below the long-term estimates.

I forecast long-term annualized EPS growth of 61% based on the following:

When the smoke clears and the dust settles, I have three long-term estimates averaging 18.5%. I am forecasting conservatively below the range at 12%.

I also must decide what initial value to use for the EPS projection. Rather than $3.24 in ’21 (or negative ’22, which is NMF), I will use the ’20 EPS of $2.09. $2.09/share * (1.12 ^ 7) = $4.62/share. The closest I can do is project from the last quarterly point ($0.42/share) to get $4.54/share using a 61% growth rate.

My Forecast High P/E is 35. Since 2016, high P/E has eased from 173 to 58.2 (2021) with a last-5-year average of 83.3. At some point, I expect P/E to fall into a “normal” range, but exactly when is unknown.

My Forecast Low P/E is 25. Since 2016, low P/E has eased from 96.7 to 44.4 (2021) with a last 5-year average of 51.2. Again, exactly when this will fall into a “normal” range is unknown.

To determine Low Stock Price Forecast (LSPF), I will assume zero growth from the initial value determined above. That would be the $2.09/share followed by 12% growth for ’21 and ’22 resulting in a low EPS of $2.62/share and LSPF of $65.50. This is 35.8% less than the previous closing price and 19.5% less than the 52-week low.

These inputs land AMZN in the HOLD zone with an U/D ratio of 1.6. The Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) is lower than desired at 6.0%. 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 857 studies done in the past 90 days (266 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 18.0%, 63.3, and 51.2. I am lower across the board. Value Line projects a future average annual P/E of 39.5, which is lower than MS (57.3) and higher than mine (30.0).

It’s quite apparent the MS community is confused about how to approach this company [I have struggled as well!]. Mean projected annualized EPS growth is 88.6%. 96 studies have EPS growth rates between 300-821% and the standard deviation is over 175%, which overwhelms the new outlier screening functionality. Thankfully mean and median are both reported thereby allowing me to choose the lesser value for a more conservative comparison.

With regard to other data, MS high and low EPS are $2.51/share (mean $4.51 with SD $5,238) and $1.09/share (mean $2.88 with SD $7.62) compared to my $4.54 and $2.62. I would argue both MS high and MS low EPS values to be unreasonably low [and at least partially offset by the high MS P/E range]. My high EPS is in the ballpark with the Value Line estimate (~10% lower). The MS LSPF of $78.90 is 20.5% greater than mine. I won’t try to calculate a default or implied Forecast Low P/E due to the widespread distribution.

I come away feeling MOS to be robust in the current study. I would look to re-evaluate the stock under $88/share.

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POOL Stock Study (5-2-23)

Posted by on May 6, 2023 at 07:25 | Last modified: May 2, 2023 14:18

I recently did a stock study on Pool Corp. (POOL) with a closing price of $346.78.

CFRA writes:

     > Pool Corp. is one of the world’s largest wholesale distributors of
     > swimming pool and related backyard products. It is also one of the
     > top three distributors of irrigation and related products in the U.S.
     > POOL offers a comprehensive selection of services and products
     > including: 1) pool maintenance, which includes supplies, repair
     > parts and chemicals; 2) pool construction and renovation, which
     > includes pool tile, control systems, lighting, pool pumps, filters,
     > heaters, cleaners, among others; 3) commercial and residential
     > irrigation and landscape equipment and maintenance; 4) outdoor
     > living, which includes grills, lighting, and hardscape products.
     > Customers primarily include swimming pool remodelers and builders;
     > specialty retailers that sell swimming pool supplies; swimming pool
     > repair and service businesses; irrigation construction and landscape
     > maintenance contractors; and commercial customers who service
     > large commercial installations such as hotels, universities, and
     > community recreational facilities.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 12.3% and 28.0% per year, respectively. Lines are up, mostly straight, and narrowing. PTPM increased from 7.6% in ’13 to 15.9% in ’22 with a last-5-year average of 12.5%. This is about even with peer averages and slightly higher than the industry.

ROE increased from 27.7% in ’13 to 61.3% in ’22 with a last-5-year average of 62.1%. This is an eye-popping number and well above peer and industry averages. Debt-to-Capital increased from 46.3% in ’13 to 74.9% in ’19 before cooling to 57.3% in ’22 for a last-5-year average of 60.3%. In case debt is a concern, Interest Coverage is 25 with Current Ratio a solid 2.4 per M*. Value Line says the former is 104 and gives the company an A rating for Financial Strength.

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

I am forecasting conservatively by cutting the one available long-term estimate in half.

I forecast long-term annualized EPS growth of 1% based on the following:

I am forecasting below the entire long-term-estimate range (mean of five: 3.7%). Furthermore, I am projecting from the 2023 Q1 $16.81/share EPS rather than the 2022 EPS of $18.70.

My Forecast High P/E is 28. Over the last 10 years, high P/E has ranged from 26.5 in ’14 to 31.3 in ’18. This excludes ’19-’21 when high P/E made excursions to 35.7, 43.6, and 36.5, respectively. With a slowdown expected ahead, my forecast is lower than all values but ’14.

My Forecast Low P/E is 14. Over the last 10 years, low P/E went from 20.9 in ’14 to 22.2 in ’19 before heading lower to 14.9 in ’22. The last-5-year average is 19.2. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $235.30, which assumes zero growth from the 2023 Q1 EPS of $16.81/share. This is 32.1% less than the previous close and 15.4% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 18.7% in ’21 to 35.6% in ’13 with a last-5-year average of 25.6%. I am forecasting conservatively at 19%.

These inputs land POOL in the HOLD zone with an U/D ratio of 1.2. The Total Annualized Return (TAR) is 7.8%.

PAR (using Forecast Average—not High—P/E) is 2.0%. 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 71 studies done in the past 90 days (25 outliers and my study 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 9.6%, 9.5%, 30.0, 18.8, and 27.6%. I am lower across the board. Value Line projects a future average annual P/E of 24.0, which is lower than MS (24.4) and higher than mine (21.0).

With regard to other data, MS high and low EPS are $28.76/share and $18.80/share compared to my $17.67 and $16.81. My high EPS is lower due to a lower forecast growth rate and my low EPS uses the most recent quarter of [lower] growth. The MS LSPF of $265.70 implies a Forecast Low P/E of 14.1, is much less than the $18.80 * 18.8 = $353.44 default value, and is 12.9% higher than mine. MOS seems robust in the current study.

I would look to re-evaluate the stock under $300/share.

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INMD Stock Study (3-23-23)

Posted by on May 4, 2023 at 07:18 | Last modified: April 13, 2023 14:04

I recently did a stock study on InMode Ltd. (INMD) with a closing price of $30.48.

M* writes:

     > InMode Ltd provides minimally and non-invasive surgical
     > aesthetic and medical treatment solutions in the United
     > States. Its products and solutions address three energy-
     > based treatment categories that include face & body
     > contouring, medical aesthetics, and women’s health.
     > InMode has developed products using its technology for
     > plastic surgery, dermatology, gynecology, and ophthalmology.

Since 2018, this small-size company has grown sales and EPS at annualized rates of 47.0% and 52.9% (including ’17—a low base—raises these rates to 52.6% and 68.7%, respectively). Lines are mostly up, straight, and parallel except for EPS dip in ’22. PTPM leads peer/industry averages, increasing from 18.3% in ’17 to 44.3% in ’22 with a last-5-year average of 38.3%.

ROE averages 33.7% over the last four years. This leads the industry and is roughly equal to peer averages. The company has minimal uncapitalized, annual rentals but no long-term debt. As a result, Debt-to-Capital averages 0.5% over the last five years. Quick Ratio is over 7.

I forecast 12% long-term annualized sales growth based on the following:

Consensus for the next two years is at least 15% per year. I am conservatively discounting that by 30% for the longer term.

I forecast 12% long-term annualized EPS growth based on the following:

I am forecasting just under the one available long-term estimate.

My Forecast High P/E is 25. High P/E over the last four years has ranged from 29.9 (’20) to 51.7 (’21) with an average of 39. I am forecasting below the range.

My Forecast Low P/E is 9. Low P/E over the last four years has ranged from 7.4 (’20) to 11.8 (’21). I am forecasting just below the mean (9.6) and median (9.5).

My Low Stock Price Forecast (LSPF) is the default value of $18.10. This is 40.6% less than the previous close and 12.1% less than the 52-week low.

These inputs land INMD in the BUY zone with an U/D ratio of 3.8. Total Annualized Return (TAR) is 21.4%.

PAR (using Forecast Average, not High, P/E) is decent at 12.4%. 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). Out of 324 studies (mine excluded) done in the last 90 days, projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, average 16.9%, 13.2%, 27.9, and 9.4, respectively. My inputs are slightly lower.

Value Line projects an average annual P/E of 12.9.in ’24, which is significantly lower than MS (18.7) and mine (17). Value Line states average annual P/E from ’19 to ’22 as: 20.5, 19.3, 28, and 18.1. In looking at the high/low P/E by year from M*, I see 36.7/8.2 (mean 22.5), 29.9/7.4 (mean 18.7), 51.7/11.8 (mean 31.8), and 37.6/10.9 (mean 24.3). The difference between Value Line and M* is therefore -2.0, +0.6, -3.8, and -6.2. On average, Value Line seems to understate M* by 11.4 / 4 ~ 2.8. Even adding this to the projected 12.9 in ’24 gets 15.7, which is still less than mine. Even though I am using a 12% EPS growth rate compared to Value Line’s 20%, I don’t see much MOS behind this study [overlooking the detail that Value Line’s projections are through ’24 rather than five years hence].

MS average high and low EPS are $3.68/share and $1.96/share compared to my $3.33 and $2.01. MS Low Stock Price Forecast is 6.4% above mine at $19.26.

Due to MOS concerns, I would look to buy under $31/share (an arbitrary 10% lowering of the upper purchase limit).

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CME Stock Study (4-10-23)

Posted by on May 2, 2023 at 07:02 | Last modified: April 13, 2023 10:58

I recently did a stock study on CME Group Inc. (CME) with a closing price of $195.10.

Value Line writes:

     > CME Group Inc. is the world’s largest and most diversified
     > derivatives marketplace. It enables clients to trade
     > futures, options, cash, and over-the-counter (OTC) markets,
     > optimize portfolios, and analyze date. It offers a range of
     > global benchmark products across major asset classes, incl.
     > interest rates, equity indexes, foreign exchange (FX),
     > agricultural commodities, energy, and metals.
     > Clearing/transaction fees (83% of ’22 rev.), Market
     > data/information services (12%), Other (5%). Acq. CBOT
     > Holdings, 7/07; NYMEX, 8/08.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 6.7% and 10.3%, respectively. Lines are mostly up, straight, and parallel except for EPS spike in ’17 (probably due to TCJA), sales dip in ’21, and EPS dip in ’22. PTPM has been much better than peer and industry averages, going from 54.5% in ’13 to 69.5% in ’22 with a last-5-year average of 63.4%.

Over the last decade, ROE has been lower than peer and industry averages increasing from 4.4% in ’13 to 9.4% in ’22 while posting a last-5-year average of 8.7%. Debt-to-Capital has been much lower than peer and industry averages. This has ranged from 9.1% in ’17 to 14.5% in ’18 with a last-5-year average of 12.2%.

M* rates the company Exemplary for Capital Allocation while Value Line assigns an A rating for Financial Strength. Interest Coverage is 22.

Given all this, I am perplexed to see M* report a Quick Ratio of 0.02. In responding to another inquiry I had recently, M* wrote: QR = (Receivables + Cash and cash equivalent) / Current Liabilities . Applying that to the Value Line data shown in the left margin, this is (483.2 + 138065.3) / 137687.5 = 1.0. I have no qualm with that.

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

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

I am forecasting below the entire long-term-estimate range (mean of six: 4.7%).

My Forecast High P/E is 27. Excluding 13.0 in ’17, high P/E over the last 10 years has ranged from 27.3 (’15) to 38.4 (’20) with a last-5-year average of 35.5. With growth projected to slow, I am forecasting below the range.

My Forecast Low P/E is 19. Excluding 9.5 in ’17, low P/E over the last 10 years has ranged from 17.5 (’13) to 27.3 (’19) with a last-5-year average of 24.3. I am forecasting near the bottom of the range [’13 and ’16 (18.1), are lower].

My Low Stock Price Forecast (LSPF) is the default value of $140.40. This is 28.0% less than the previous close and 15.7% less than the 52-week low.

Excluding 51.4% in ’17, Payout Ratio over the last 10 years has ranged from 79.7% in ’18 to 150.7% in ’13 with a last-5-year average of 96.4%. Most of these numbers seem unsustainably high [I actually wonder if this portion of the data stream is corrupt]. I am forecasting below the range at 50.0%.

These inputs land CME in the HOLD zone with an U/D ratio of 0.7. Total Annualized Return (TAR) is 5.3%.

PAR (using Forecast Average, not High, P/E) is 2.4%, which is too low 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 20 studies done in the past 90 days (my study along with 7 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 5.1%, 5.5%, 28.4, 19.9, and 45.9%. I am lower on everything but Payout Ratio. Value Line projects a future average annual P/E of 22.5, which is lower than MS (24.2) and just lower than me (23.0). Overall, this study seems to have a small MOS.

With regard to other data, MS high and low EPS are $9.44/share and $6.63/share compared to my $8.58 and $7.39. 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 $134.80 (4.2% less than mine). This is slightly higher than the default $6.63 * 19.9 = $131.94, which seems reasonable (MS LSPF is typically much lower than default).

I would look to re-evaluate this stock under $163/share.

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