G Stock Study (5-24-23)

I recently did a stock study on Genpact Ltd. (G) with a closing price of $38.13.

M* writes:

     > Genpact Ltd is a provider of business process management services.
     > Clients are industry verticals and operate in banking and
     > financial services, insurance, capital markets, consumer product
     > goods, life sciences, infrastructure, manufacturing and services,
     > healthcare, and high-tech. Genpact’s services include aftermarket,
     > procurement, risk and compliance, human resources, IT, industrial
     > direct solutions, collections, finance and accounting, and media
     > services. Genpact’s end market by revenue is India. The company
     > is a General Electric spin-off, which is still a large source of
     > revenue for Genpact.

This medium-size company has grown sales and EPS at annualized rates of 8.5% and 8.9% over the last decade. Lines are mostly up, straight, and parallel except for EPS dips in ’14 and ’22. PTPM has remained above peer and industry averages, declining from 14.4% in ’13 to 10.6% in ’22 with a last-5-year average of 11.4%.

Over the last 10 years, ROE slightly trails the industry while beating peer averages with a last-5-year mean of 18.9%. Debt-to-Capital is lower than industry averages and about even with peers despite climbing from 33.4% in ’13 to 48.2% in ’22 with a last-5-year mean of 50.3%. Quick Ratio is 1.7 and Interest Coverage is 9.2. Value Line rates the company B++ for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 1.4x on a TTM basis.”

I forecast long-term sales growth of 7.0% based on the following:

• CNN Business projects 6.8% YOY and 15.9% for ’23 and ’22-’24, respectively (based on 10 analysts).
• YF projects YOY 6.5% and 9.3% for ’23 and ’24, respectively (10 analysts).
• Zacks projects YOY 6.5% and 8.8% for ’23 and ’24, respectively (6).
• Value Line projects 7.6% annualized growth from ’22-’27.
• CFRA projects 6.7% YOY and 15.6% per year for ’23 and ’22-’24, respectively.

I am forecasting just below the long-term estimate.

I forecast long-term annualized EPS growth of 8.0% based on the following:

• CNN Business projects 7.7% YOY and 9.7% per year for ’23 and ’22-’24, respectively (based on 10 analysts), along with 5-year annualized growth of 8.8%.
• MarketWatch projects 9.9% YOY and 10.7% per year for ’23 and ’22-’24, respectively (12 analysts).
• Nasdaq.com projects 12.7% YOY and 11.8% per year for ’24 and ’23-’25 (6, 7, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 10.1%.
• YF projects YOY 7.7% and 11.9% for ’23 and ’24, respectively (11), along with 5-year annualized growth of 9.3%.
• Zacks projects YOY 7.7% and 11.9% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 8.8%.
• Value Line projects 11.2% annualized growth from ’22-’27.
• CFRA projects 4.1% YOY and 6.8% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 10.0%.

I am forecasting below the long-term-estimate range (mean of five: 9.6%). My initial value is the ’22 EPS of $1.88/share rather than Q1 ’23 EPS of $1.94 (annualized).

My Forecast High P/E is 22. Over the last 10 years, high P/E has trended up from 22.0 in ’13 to 28.7 in ’22 with a last-5-year average of 27.7. I am forecasting conservatively at the bottom of the range. The last-5-year-average average P/E is 22.5.

My Forecast Low P/E is 15. Aside from ’20 (downside outlier at 12.4), low P/E over the last 10 years has trended up from 15.8 in ’13 to 20.0 in ’22 with a last-5-year average of 18.6 (outlier excluded). I am forecasting conservatively below the range.

My Low Stock Price Forecast (LSPF) is the default [using $1.88/share] value of $28.20. This is 26.0% less than the previous closing price and 21.2% less than the 52-week low.

Since dividend payment was instituted, Payout Ratio has increased from 17.9% in ’17 to 26.6% in ’22 with a last-5-year average of 23.3%. I am forecasting near the bottom of the range at 18.0%.

These inputs land G in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is 7.0%, which is less 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 27 studies (my study and 12 outliers excluded) over the past 90 days, 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%, 10.0%, 25.3, 16.6, and 21.3%. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is lower than MS (21.0) and mine (18.5).

With regard to EPS, MS high and low are $3.04/share and $1.83/share in contrast to my $2.76 and $1.88. My high EPS is lower due to forecast EPS growth rate.

MS Low Stock Price Forecast of $30.20 is 7.1% greater than mine and in-line with the $1.83 * 16.6 = $30.38 default value.

MOS in this study seems consistent. Come to think of it, everything about this study has been “consistent.” Maybe that’s something to expect for a company with an Earnings Predictability rating (Value Line) of 100.

G is a BUY under $36/share.