MKTX Stock Study (7-6-23)

I recently did a stock study on MarketAxess Holdings, Inc. (MKTX) with a closing price of $258.38.

M* writes:

     > Founded in 2000, MarketAxess is a leading electronic fixed-income
     > trading platform that connects broker/dealers and institutional
     > investors. The company is primarily focused on credit based fixed
     > income securities with its main trading products being U.S.
     > investment-grade and high-yield bonds, Eurobonds, and Emerging
     > Market corporate debt. Recently the company has expanded more
     > aggressively into Treasuries and municipal bonds with the
     > acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021,
     > respectively. The company also provides pre- and post-trade
     > services with its acquisition of Regulatory Reporting Hub from
     > Deutsche Börse Group in 2020 adding to its product offerings.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 14.2% and 18.2%, respectively. Lines are mostly up, straight, and parallel except for EPS dips in ’21 and ’22. PTPM leads peer and industry averages while trending lower recently from 44.9% (’13) to 51.8% (’16) to 47.1% (’22) with a last-5-year mean of 49.9%.

Over the past decade, ROE also leads peer and industry averages while going from 23.8% (’13) to 29.5% (‘190 then decreasing to 24.6% (’22) with a last-5-year mean of 28.3%. Debt-to-Capital is much lower than peer and industry averages as the company has no debt (uncapitalized leases only): last-5-year mean is 7.0%.

Interest Coverage is over 500 while Quick Ratio is 2.2. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 10.3% YOY and 11.3% per year for ’23 and ’22-’24 (based on 10 analysts).
• YF projects YOY 10.3% and 12.4% for ’23 and ’24, respectively (13 analysts).
• Zacks projects YOY 11.1% and 12.5% for ’23 and ’24, respectively (6).
• Value Line projects 12.6% annualized growth from ’22-’27.
• CFRA projects 10.4% YOY and 11.3% per year for ’23 and ’22-’24, respectively (12).
• M* gives a 2-year ACE of 11.7% per year along with 11.1% per year from ’21-’26 (analyst note).

I am forecasting near the bottom of the range at 10.0%.

With regard to EPS growth:

• CNN Business projects 11.7% YOY and 13.7% per year for ’23 and ’22-’24, respectively (based on 10 analysts), along with 5-year annualized growth of 13.5%.
• MarketWatch projects 13.9% and 13.5% per year for ’22-’24 and ’22-’25, respectively (14 analysts).
• Nasdaq.com projects 11.5% and 12.6% for ’23-’25 and ’23-’26 [5, 4, and 1 analyst(s) for ’23, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 13.5%.
• YF projects YOY 12.3% and 15.8% for ’23 and ’24, respectively (14), along with 5-year annualized growth of 13.5%.
• Zacks projects YOY 13.0% and 13.7% for ’23 and ’24, respectively (5).
• Value Line projects 13.9% annualized growth from ’22-’27.
• CFRA projects 12.0% YOY and 14.4% per year for ’23 and ’22-’24, respectively (9).
• M* projects long-term annualized growth of 13.6%.

The mean of five long-term estimates is 13.6% per year but three being identical makes me suspicious of data duplication. Regardless, I am forecasting below the range. I will use ’22 EPS of $6.65/share as the initial value rather than ’23 Q1 EPS of $6.90 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E has ranged from 37.4 in ’14 to 87.0 in ’21 with a last-5-year mean of 71.0. The last-5-year-mean average P/E is 54.9. I am forecasting [at upper end of my comfort zone] below the range.

My Forecast Low P/E is 29.0. Over the past decade, low P/E has ranged from 18.9 in ’13 to to 50.4 in ’21 with a last-5-year mean of 38.8. The last-10-year median is 33.9. I am forecasting below the latter [’13, ’14 (24.0), and ’15 (26.0) are lower].

My Low Stock Price Forecast (LSPF) is the default $192.90 based on $6.65/share initial value. This is 25.3% less than the previous closing price and 11.3% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 28.7% in ’13 to 42.1% in ’22 with a last-5-year mean of 37.2%. I am forecasting below the range at 28.0%.

These inputs land MKTX in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) of 6.4% is less than I seek for a small-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 44 studies over the past 90 days (my study + 14 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.9%, 12.5%, 53.0, 34.1, and 34.0% respectively. I am lower across the board. Value Line projects an average annual P/E of 40.0, which is lower than MS (43.6) but higher than mine (32.0).

MS high/low EPS is $12.32/$6.72 vs. my $10.71/$6.65 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $229.30 implies a Forecast Low P/E of 34.1: an exact match to that cited above. MS LSPF remains 18.9% greater than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG = (current P/E) / (forecast EPS growth rate) = 38.0 / 10.0 = 3.8 (1.5 is generally regarded as an upper limit) while Relative Value (M* data) is 0.69. The former (latter) suggests the stock to be overvalued (undervalued).

I would look to re-evaluate MKTX under $238/share.

AKAM Stock Study (7-5-23)

I recently did a stock study on Akamai Technologies, Inc. (AKAM) with a closing price of $91.32.

M* writes:

     > Akamai operates a content delivery network, or CDN, which entails
     > locating servers at the edges of networks so its customers, which
     > store content on Akamai servers, can reach their own customers
     > faster, more securely, and with better quality. Akamai has over
     > 325,000 servers distributed over 4,100 points of presence in more
     > than 1,000 cities worldwide. Its customers generally include
     > media companies, which stream video content or make video
     > games available for download, and other enterprises that run
     > interactive or high-traffic websites, such as e-commerce firms and
     > financial institutions. Akamai also has a significant security
     > business, which is integrated with its core delivery and
     > computing businesses to protect customers from cyberthreats.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 8.9% and 10.6%, respectively. While sales have been up and straight, EPS declines in ’15, ’17, and ’22 make the graph look somewhat cyclical. Normalized EPS is a bit more straight. PTPM leads peers and trails the industry as it trends down from 26.6% in ’13 to 18.2% in ’22 with a last-5-year mean of 17.9%.

Also over the past decade, ROE leads peers and trails the industry while trending sideways from 11.3% in ’13 to 12.1% in ’22 with a last-5-year mean of 12.3%. Debt-to-Capital is lower than peer and industry averages despite trending higher from 0% in ’13 to 42.1% in ’22 with a last-5-year mean of 39.1%.

Interest Coverage is 58.4 and Quick Ratio is 1.7. M* gives an Exemplary rating for Capital Allocation and Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 5.6% YOY and 5.4% per year for ’23 and ’22-’24 (based on 15 analysts).
• YF projects YOY 4.0% and 6.1% for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 4.1% and 6.3% growth for ’23 and ’24, respectively (8).
• Value Line projects 3.8% annualized growth from ’22-’27.
• CFRA projects 4.4% YOY and 5.3% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 4.7% per year along with a 5-year annualized projection of 5.0% (analyst note).

I am forecasting near the bottom of the range at 4.0%.

With regard to EPS growth:

• CNN Business projects 7.1% YOY and 8.1% per year for ’23 and ’22-’24, respectively (based on 15 analysts), along with 5-year annualized growth of 9.0%.
• MarketWatch projects 9.2% growth per year for both ’22-’24 and ’22-’25 (21 analysts).
• Nasdaq.com projects 9.3% YOY and 9.9% per year for ’24 and ’23-’25 (9, 9, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 9.0%.
• YF projects YOY 7.1% and 9.6% for ’23 and ’24, respectively (18), along with 5-year annualized growth of 8.0%.
• Zacks projects YOY 7.5% and 8.5% for ’23 and ’24, respectively (9), along with 5-year annualized growth of 10.0%.
• Value Line projects 7.8% annualized growth from ’22-’27.
• CFRA projects 6.7% YOY and 8.1% per year for ’23 and ’22-’24 along with a 3-year CAGR of 9.0%.
• M* projects long-term annualized growth of 11.3%.

The mean of six long-term estimates is 9.2% per year. I am forecasting below the range at 7.0%. I will use ’23 Q1 EPS of $2.86/share (annualized) as the initial value rather than ’22 EPS of $3.26.

My Forecast High P/E is 30.0. Over the past decade, high P/E has ranged from 31.8 (’21) to 56.9 (’17) with a last-5-year mean of 36.9. The last-5-year-mean average P/E is 30.7. I am forecasting below the range.

My Forecast Low P/E is 22.0. Over the past decade, low P/E has ranged from 19.7 (’19) to 35.4 (’17) with a last-5-year mean of 24.4. I am forecasting toward the lower end of the range [only ’19 and ’13 (20.3) are lower].

My Low Stock Price Forecast (LSPF) is the default value $62.90 based on $2.86/share initial value. This is 31.1% less than the previous closing price and 11.0% less than the 52-week low.

These inputs land AKAM in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 2.7%. 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 85 studies over the past 90 days (my study along with 16 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.2%, 9.0%, 34.2, and 23.8, respectively. I am lower across the board. Value Line projects an average annual P/E of 34.0, which is higher than MS (29.0) and much higher than mine (26.0).

MS high/low EPS is $4.80/$2.97 vs. my $4.01/$2.86 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $69.40 implies a Forecast Low P/E of 23.4, which is close to the above-stated 23.8. MS LSPF remains 10.3% higher than mine, which lends itself to more aggressive zoning.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.58: just above the upside threshold of 1.50. Relative Value (M* data) is 1.04. Both suggest the stock to be slightly overvalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 20 * ($9.25 – [0 + $2.75)] = $130.00 (i.e. stock undervalued by 30%).

I would look to re-evaluate AKAM under $77/share.

CTSH Stock Study (7-31-23)

I recently did a stock study on Cognizant Technology Solns Corp. (CTSH) with a closing price of $65.76. Previous studies are here and here.

M* writes:

     > Cognizant is a global IT services provider, offering consulting and
     > outsourcing services to some of the world’s largest enterprises spanning
     > the financial services, media and communications, healthcare, natural
     > resources, and consumer products industries. Cognizant employs nearly
     > 300,000 people globally, roughly 70% of whom are in India, although
     > the company’s headquarters are in Teaneck, New Jersey.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 8.5% and 7.4%, respectively. Lines are mostly up and parallel except for a sales dip in ’20 and EPS rockiness (down in ’16, ’17, ’19, and ’20). PTPM has been above peer and industry averages despite trending down from 19.1% in ’13 to 15.5% in ’22 with a last-5-year mean of 15.2%.

Also over the past decade, ROE trails peer and industry averages ranging from 12.2% in ’20 to 21.7% in ’13 with a last-5-year mean of 17.0%. Despite increasing from 0% in ’13 to 11.1% in ’22, Debt-to-Capital is much less than peers and the industry with a last-5-year mean of 11.3%.

M* gives a “Standard” rating for Capital Allocation while Value Line gives an A+ grade for Financial Strength. Interest Coverage is over 117 and Quick Ratio is 1.87.

With regard to sales growth:

• CNN Business projects 0.5% YOY and 2.5% growth per year for ’23 and ’22-’24 (based on 24 analysts).
• YF projects YOY growth of 0.2% and 4.7% for ’23 and ’24, respectively (27 analysts).
• Zacks projects YOY 0.1% contraction and 4.3% growth for ’23 and ’24, respectively (7).
• Value Line projects 4.7% annualized growth from ’22-’27.
• CFRA projects growth of 0.5% YOY and 2.7% per year for ’23 and ’22-’24.
• M* provides a 2-year CAGR of 2.9% and projects 5-year annualized growth of 9.0% in its analyst note.

I am forecasting below both long-term estimates at 4.0% per year.

With regard to EPS growth:

• CNN Business reports ACE of 3.4% YOY contraction and 2.7% growth per year for ’23 and ’22-’24, respectively (based on 24 analysts), along with 5-year annualized growth of 5.0%.
• MarketWatch projects annualized growth of 2.3% and 4.7% for ’22-’24 and ’22-’25, respectively (29 analysts).
• Nasdaq.com projects growth of 7.0% YOY and 8.3%/year for ’24 and ’23-’25 (10, 9, and 5 analysts for ’23, ’24 and ’25).
• Seeking Alpha projects 4-year annualized growth of 7.7%.
• YF projects YOY 3.0% contraction and 8.4% growth for ’23 and ’24, respectively (25), along with 5.4% annualized growth for the next five years.
• Zacks projects YOY 2.1% contraction and 6.7% growth for ’23 and ’24, respectively (9), along with 11.0% annualized growth for the next five years.
• Value Line projects 8.1% growth per year from ’22-’27.
• CFRA projects 2.7% YOY contraction and 3.4% growth per year for ’23 and ’22-’24 along with a 3-year CAGR of 6.0%.
• M* projects long-term growth of 10.1%.

My 5.0% forecast is at the bottom of the long-term-estimate range (mean of six: 7.9%). I will use ’22 EPS of $4.41/share as the initial value rather than ’23 Q1 EPS of $4.49 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E has ranged from 21.2 in ’22 to 32.2 in ’20 with a last-5-year mean of 24.4. I am forecasting just below the range. The last-5-year-mean average P/E is 19.9.

My Forecast Low P/E is 11.0. Over the past decade, low P/E has ranged from 11.6 in ’22 to 20.4 in ’17 with a last-5-year mean of 15.5. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $48.50 is the default value based on $4.49/share initial value. This is 26.2% less than the previous close and 5.5% less than the ’22 [and 52-week] low.

Since a dividend was issued in 2017, Payout Ratio has ranged from 17.8% in ’17 to 34.2% in ’20 with a last-5-year mean of 25.8%. I am forecasting below the range at 17.0%.

These inputs land CTSH in the BUY zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 13.3%.

PAR (using Forecast Average—not High—P/E) is 7.6%, which is less than I seek in a large-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 346 studies done in the past 90 days (my study and 77 other 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 6.6%, 8.1%, 22.5, 15.9, and 17.0%. I am at or lower than each. Value Line projects a future average annual P/E of 17.0, which is lower than MS (19.4) and higher than mine (16.0).

MS high / low EPS is $6.52 / $3.69 vs. my $5.63 / $4.41 (per share). My high EPS is lower due to a lower growth rate. I am confused why MS $3.69/share is so low. ’22 and ’21 annual EPS are both higher. I have to go back to Q4 2020 to find the most recent quarterly report that low. Although my EPS range is still slightly lower, I almost think MS low EPS is too extreme.

MS LSPF of $50.60 implies a Forecast Low P/E of 13.7 vs. the above-stated 15.9. MS LSPF is 13.8% less than the default $3.69/share * 15.9 = $58.67, which results in more conservative zoning. MS LSPF remains 4.3% greater than mine.

MOS backing the current study seems robust. My TAR is also less than MS 17.9% and really, I’d like TAR to be at least 15.0%.

I track a few different valuation metrics. PEG is 1.4 (Zacks) or 2.8 (overvalued using my forward P/E). Relative Value [(current P/E) / 5-year-mean average P/E] is undervalued at 0.73 (M*). Kim Butcher’s “quick and dirty DCF” prices the stock at 15.5 * [$8.00 – ($1.60 + $1.00)] = $83.70 thereby suggesting the stock to be undervalued by 21.0%.

I would look to BUY the stock under $64/share (greater TAR).

MMM Stock Study (7-5-23)

I recently did a stock study on 3M Co. (MMM) with a closing price of $101.14. Previous studies are here and here.

Value Line writes:

     > 3M Company is a diversified manufacturer and technology
     > company with operations in more than 70 countries. It is
     > among the leading manufacturers in many of the markets it
     > serves. The conglomerate currently operates four business
     > segments: Safety and Industrial (33.9% of ’22 sales);
     > Transportation and Electronics (26.0%); Health Care
     > (24.6%); Consumer (15.5%). Research & Development:
     > $1.9 billion or 5.4% of ’22 sales.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 1.3% and 4.2%, respectively. Lines are somewhat up, but hardly straight or parallel (sales declines in ’15, ’16, ’19, and ’22; EPS declines in ’17 and ’19). Stock price is near a 10-year low. Per visual inspection, this is not a high-quality growth stock. PTPM has been greater than peer and industry averages despite trending lower from 21.3% in ’13 to 18.7% in ’22 with a last-5-year mean of 19.8%.

Over the past decade, ROE has been greater than peer and industry averages while increasing from 25.1% in ’13 to 39.7% in ’22 with a last-5-year mean of 43.3%. Debt-to-Capital has also been greater than peer and industry averages while trending higher from 25.7% in ’13 to 53.4% in ’22 with a last-5-year mean of 59.4%. Interest Coverage is 13.7 and Quick Ratio is 0.8. M* gives a Standard rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

MMM faces risk due to PFAS (environmental) and Combat Arms (military earplugs) litigation. In the most recent analyst report, M* assumes total liability of $24B (up from $18B three months ago).

Although M* assigns a wide/stable economic moat to the company, CFRA seems to disagree:

     > …most 3M products are commodity-like, such as roofing
     > granules or adhesives. Commodity-like products with intense
     > competition have little pricing power, making it difficult
     > to improve margins over the long term. 3M does enjoy brand
     > power on certain products, but not enough to drive overall
     > pricing growth that can keep up with inflation.

With regard to sales growth:

• CNN Business projects contraction of 6.4% YOY and 1.8% per year for ’23 and ’22-’24 (based on 16 analysts).
• YF projects YOY 6.9% contraction and 3.3% growth for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 6.2% contraction and 3.8% growth for ’23 and ’24, respectively (4).
• Value Line projects 2.5% annualized growth from ’22-’27.
• CFRA projects contraction of 3.2% YOY and 0.2% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 1.7% contraction per year.

I am forecasting below the long-term estimate at 1.0% per year.

With regard to EPS growth:

• CNN Business projects contraction of 14.7% YOY and 2.4% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with 5-year annualized growth of 6.4%.
• MarketWatch projects contraction of 2.8% and 0.8% growth per year for ’22-’24 and ’22-’25, respectively (19 analysts).
• Nasdaq.com projects growth of 4.7% YOY and 10.3% per year for ’24 and ’23-’25 (10, 5, and 3 analysts for ’23, ’24, and ’25, respectively).
• Seeking Alpha projects 4-year annualized growth of 4.1%.
• YF projects YOY 14.6% contraction and 10.8% growth for ’23 and ’24, respectively (17), along with 5-year annualized growth of 1.9%.
• Zacks projects YOY 14.4% contraction and 9.7% growth for ’23 and ’24, respectively (5), along with 5-year annualized growth of 9.5%.
• Value Line projects 4.2% annualized growth from ’22-’27.
• CFRA projects contraction of 18.0% YOY and 4.6% per year for ’23 and ’22-’24.
• M* projects long-term annualized growth of 1.9%.

The mean of six long-term estimates is 4.7% growth per year. I am forecasting below the range at 1.0% per year. I will use ’23 Q1 EPS of $9.65/share (annualized) as the initial value rather than ’22 EPS of $10.18.

My Forecast High P/E is 18.0. Over the past decade, high P/E has ranged from 17.9 (’22) to 30.8 (’17) with a last-5-year mean of 23.1. The last-5-year-mean average P/E is 19.4. I am forecasting near the bottom of the range (only ’22 is lower).

My Forecast Low P/E is 8.0. Over the past decade, low P/E has ranged from 10.5 (’17) to 21.9 (’22) with a last-5-year mean of 15.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default value $77.20 based on $9.65/share initial value. This is 23.7% less than the previous closing price and 16.5% less than the 52-week low.

Over the past decade, Payout Ratio has increased from 37.8% to 58.5% in ’22 with a last-5-year average of 63.1%. I am forecasting below the entire range at 37.0%.

These inputs land MMM in the BUY zone with a U/D ratio of 3.6. Total Annualized Return (TAR) is 14.8%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-sized company at 8.5%. 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 116 studies over the past 90 days (52 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 2.5%, 4.0%, 21.3, 14.9, and 60.1%, respectively. I am lower across the board. Value Line projects an average annual P/E of 14.0, which is lower than MS (18.1) and higher than mine (13.0).

MS high/low EPS is $12.01/$9.42 vs. my $10.14/$9.65 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $100.20 implies a Forecast Low P/E of 10.6 as opposed to the above-stated 14.9. MS LSPF is 28.6% less than the default value of 14.9 * $9.42/share = $140.36/share, which results in more conservative zoning. It remains 29.8% higher than mine, however.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.22. Relative Value (M* data) is 0.54. The latter reflects the stock as significantly undervalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 12 * (16.10 – [6.75 + 3.00)] = $76.20 (i.e. stock overvalued by 33%).

The litigation risk somewhat offsets what I perceive to be a robust MOS in this study. In the most recent report, M* increased its uncertainty rating to “very high” and suggested the dividend may be at risk. While MMM is a BUY under $103/share, maybe I knock another 5-10% off and look to buy under $98 or $93 in case the legal tab ends up higher than anticipated.

WAL Stock Study (7-3-23)

I recently did a stock study on Western Alliance Bancorp (WAL) with a closing price of $36.47. The original study is here.

M* writes:

     > Western Alliance Bancorporation is a Las Vegas-based holding
     > company with regional banks operating in Nevada, Arizona, and
     > California. The bank offers retail banking services and focuses
     > on mortgages for retail customers and commercial loans, mainly
     > for real estate. The bank also has an investment advisory
     > business that manages investment portfolios for Western clients
     > and clients of other banks.

Over the past decade, this medium-size bank has grown assets and EPS at annualized rates of 22.3% and 24.5%, respectively. Lines are mostly up, straight, and parallel (including total assets and sales). PTPM has led peer and industry averages while trending up from 41.2% in ’13 to 57.5% in ’22 with a last-5-year mean of 56.6%.

Also over the past decade, ROE leads peer and industry averages while trending up from 16.8% in ’13 to 21.0% in ’22 with a last-5-year mean of 18.4%. Debt-to-Capital has been lower than peer and industry averages despite increasing from 30.9% in ’13 to 55.7% in ’22 for a last-5-year mean of 26.2%. Value Line has recently trimmed its Financial Strength rating to B+.

ROAA has increased from 1.34% in ’13 to 1.69% in ’22 with a last-5-year average of 1.85%. This is outstanding and has been above 1.50% every year since ’15.

With regard to sales growth:

• CNN Business projects flat YOY and 3.8% growth per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 6.6% and 3.5% for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 1.6% and 5.9% for ’23 and ’24, respectively (6).
• CFRA projects 2.5% YOY and 4.5% per year for ’23 and ’22-’24, respectively (9).
• M* gives an ACE of 10.0% per year for the next two years.

The estimates have not stopped going down. I am lowering my forecast as well to 3.0%.

With regard to EPS growth:

• CNN Business projects contraction of 23.6% YOY and 6.9% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with 5-year annualized growth of 2.5%.
• MarketWatch projects 6.9% contraction per year and 1.0% growth per year for ’22-’24 and ’22-’25 (16 analysts).
• Nasdaq.com projects 0.1% YOY contraction and 11.2% growth per year for ’24 and ’23-’25 [9, 10, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized contraction of 7.0%.
• YF projects YOY 15.5% contraction and 3.9% growth for ’23 and ’24, respectively (12), along with 5-year annualized contraction of 13.3%.
• Zacks projects YOY contraction of 15.8% and 0.1% for ’23 and ’24 (9) along with 5-year annualized growth of 10.1%.
• Value Line projects contraction of 15.2% YOY and 7.0% per year for ’23 and ’22-’24, respectively, and offers a 5-year-annualized ACE of 10.2%.
• CFRA projects contraction of 17.3% YOY and 7.3% per year for ’23 and ’22-’24, respectively (14).

The range of five long-term estimates is -13.3% to +10.2%. For high EPS, I will forecast zero growth: just below the 5-estimate mean (+0.5%). For low EPS, I will forecast -2.0%. I will use an initial value of ’23 Q1 EPS $8.76/share (annualized) rather than ’22 EPS of $9.70.

My Forecast High P/E is 9.0. From ’13-’22, high P/E has gone from 18.7 to 12.9 with a last-5-year mean of 13.4. The last-5-year-mean average P/E is 10.0. I am forecasting below the entire range (down from 11.0 in previous WAL study).

My Forecast Low P/E is 2.0. From ’13-’22, low P/E has gone from 8.2 to 5.7 with a last-5-year mean of 6.7 (lowest was 4.1 in ’20). Due to the uncertainty and bank failures, I had previously forecast 1.0 to cover the 52-week low price. I now believe the panic selling for banks is behind us. Black Swans can occur anywhere: they just rarely do.

My Low Stock Price Forecast (LSPF) is the default value $15.80 based on $7.92/share initial value. This is 56.7% below the previous close and over double the 52-week low price of $7.50 seen the week of 3/8/23.

Again, short of failing and having to shudder its doors, I don’t think the 52-week low will be tested anytime soon.

WAL started paying a dividend in ’19 with an average Payout Ratio of 14.7% since. I am forecasting below the range (10.3% – 19.8%) at 9.0%.

These inputs land WAL in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 17.7%.

PAR (using Forecast Average—not High—P/E) is 7.4%, which is less than I seek for a medium-size stock. 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 263 studies over the past 90 days (130 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.7%, 10.6%, 11.2, 5.9, and 14.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 4.3, which is lower than MS (8.6) and mine (5.5). This Value Line estimate is for 2024, though, which is two years out rather than five. Should a normal recovery occur, I expect to see a P/E range only slightly lower than historical averages (last 4-year-mean average annual P/E is 9.3 per Value Line).

MS high/low EPS is $14.96/$8.76 vs. my $8.76/$7.92 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $25.20 implies a Forecast Low P/E of 2.9 as opposed to the above-stated 5.9. This is 51.2% less than the default value of 5.9 * $8.76/share = $51.68/share, which results in more conservative zoning. It remains 59.5% higher than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 0.99 (lower limit of fair value generally regarded as 1.0). Relative Value (M* data) is 0.42. Both of these reflect the stock as undervalued.

I would look to BUY under $31/share.

MBUU Stock Study (7-24-23)

I recently did a stock study on Malibu Boats Inc. (MBUU) with a closing price of $57.64. The original study is here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace active lifestyles.

Over the past decade, this medium-size (as of 2022) company has grown sales and earnings at annualized rates of 25.7% and 33.6% [75.6% if the 2014 loss is included], respectively. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’14, ’18, and ’20. PTPM over the decade is higher than peer and industry averages and has increased from 10.8% in ’13 to 17.3% in ’22 with a last-5-year mean of 15.5%.

Over the past five years, ROE is slightly better than peer and industry averages in ranging from 22.9% (’18) to 35.6% (’19) with a mean of 29.9%. Debt-to-Capital is slightly lower than peer and industry averages in declining from 152% (’15) to 19.5% (’22) with a last-5-year mean of 30.6%.

Interest Coverage is 62.1 and Quick Ratio is 0.79. M* rates the company “Standard” for Capital Allocation while Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.3% YOY and 0% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 10.5% growth and 5.1% contraction for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 10.6% growth and 7.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 10.5% YOY and 2.4% growth per year for ’23 and ’22-’24, respectively (7).
• M* gives 2-year annualized ACE of 9.7% along with projecting 8.0% growth for the next five years in an analyst note.

I am forecasting less than both long-term estimates at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 7.7% YOY growth and 3.0% contraction per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects annualized contraction of 2.1% and 0.5% for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects contraction of 12.7% YOY and 3.6% per year for ’24 and ’23-’25, respectively [4, 4, and 1 analyst(s) for ’23, ’24, and ’25].
• YF projects YOY 7.6% growth and 10.9% contraction for ’23 and ’24, respectively (6), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 7.8% growth and 12.4% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 13.4% YOY and 0.5% per year for ’23 and ’22-’24, respectively (8).
• M* projects long-term annualized growth of 9.7%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 9.9%) at 5.0% per year. I am using ’22 EPS of $7.51/share as the initial value rather than ’23 Q3 EPS of $8.23 (annualized).

My Forecast High P/E is 13.0. Excluding 2018 upside outlier of 34.2, high P/E has fallen from 26.0 in ’15 to 11.5 in ’22 with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 13.4. I am forecasting below the latter (only ’22 is lower).

My Forecast Low P/E is 5.0. Since ’15, low P/E has generally trended down from 17.4 in ’15 to 6.4 in ’22 with a last-5-year mean of 10.0. I am projecting below the entire range.

My Low Stock Price Forecast (LSPF) of $37.50 is the default based on $7.51/share initial value. This is 34.9% less than the previous close and 19.7% less than the 52-week low.

These inputs land MBUU in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 16.7%.

PAR (using Forecast Average—not High—P/E) is 8.4%, which is a bit less than I prefer 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 247 studies done in the past 90 days (59 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 8.5%, 8.4%, 14.4, and 7.3. I am lower across the board. Value Line projects a future average annual P/E of 10.0, which is lower than MS (10.9) and higher than me (9.0).

MS high/low EPS is $12.09/$7.79 vs. my $9.58/$7.51 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $77.80 implies a Forecast Low P/E of 5.6 vs. the above-stated 7.3. MS LSPF is 22.6% less than the default value of $7.79/share * 7.3 = $67.21, which results in more conservative zoning. MS LSPF remains 29.2% greater than mine.

MOS in the current study seems robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two metrics I have been monitoring. PEG is 1.3 while Relative Value is 0.52 per M*. The latter suggests the stock to be significantly undervalued.

According to Kim Butcher’s “quick and dirty DCF,” the stock should be priced at 8 * [$12.00 – ($0.00 + $2.60)] = $75.20 (i.e. stock undervalued by 30.5%).

I would look to sail away with shares under $59.00.

PAYX Stock Study

I recently did a stock study on Paychex Inc. (PAYX) with a closing price of $109.33.

M* writes:

     > Paychex is a leading provider of payroll, human capital management,
     > and insurance solutions servicing small and midsize clients primarily
     > in the United States. The company, established in 1979, services
     > over 730,000 clients and pays over 1 in 12 U.S. private-sector workers.
     > Alongside its traditional payroll services, Paychex offers HCM solutions
     > such as benefits administration and time and attendance software, as
     > well as human resources outsourcing and insurance agency services.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 7.7% and 10.0%. Lines are mostly up, straight, and parallel except for the slightest of EPS dips in ’20 (by $0.01/share). PTPM far outpaces peer and industry averages while fighting off a 4-year decline to retake 2012 levels with a last-5-year mean of 37.0%.

Also over the past decade, ROE has been higher than peer and industry averages while increasing from 35.5% in ’12 to 42.1% in ’21 (FY ends May 31) with a last-5-year mean of 40.6%. Debt-to-Capital has been less than peer and industry averages despite increasing from 0% in ’12-’17 to 22.2% in ’21 with a last-5-year mean of 18.6%. Interest Coverage is 55.2 and Quick Ratio is 0.5. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 6.0% YOY and 5.8% per year for ’23 and ’22-’24 (based on 17 analysts).
• YF projects YOY 8.4% and 6.2% for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 6.4% and 6.5% for ’23 and ’24, respectively (6).
• Value Line projects 8.1% annualized growth from ’22-’27.
• CFRA projects 6.6% YOY and 6.4% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 7.1%/year along with projecting 5-year annualized growth of 6.0% in its analyst note.

I am forecasting at the bottom of the range: 6.0%.

With regard to EPS growth:

• CNN Business projects 9.1% YOY and 8.0% per year for ’23 and ’22-’24, respectively (based on 17 analysts), along with 5-year annualized growth of 10.5%.
• MarketWatch projects 7.9% and 7.8% per year for ’23-’25 and ’23-’26, respectfully (21 analysts).
• Nasdaq.com projects 6.2% YOY for ’25 (4).
• Seeking Alpha projects 4-year annualized growth of 8.8%.
• YF projects YOY 13.5% and 7.2% for ’23 and ’24, respectively (20), along with 5-year annualized growth of 9.2%.
• Zacks projects YOY 8.4% and 7.1% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 7.5%.
• Value Line projects 8.6% annualized growth from ’22-’27.
• CFRA projects 9.8% YOY and 7.6% for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 7.0%.
• M* projects long-term growth of 9.0%.

I am forecasting just below the long-term-estimate range (mean of six: 8.9%) at 7.0%. I am using ’22 EPS of $3.94/share as the initial value rather than ’23 Q3 EPS of $4.15 (annualized).

My Forecast High P/E is 25.0. Over the past decade, high P/E has increased from 24.8 in ’12 to 37.0 in ’21 with a last-5-year mean of 31.9. The last-5-year-mean average P/E is 26.7. I am forecasting toward the bottom of the range (only ’12 is lower).

My Forecast Low P/E is 21.0. Over the past decade, low P/E has ranged from 15.7 in ’19 to 26.0 in ’21 with a last-5-year mean of 21.5. 15.7 in ’19 looks like it may be a downside outlier. Excluding that, the last-5-year mean is 22.9. Including that, the last-10-year median is 21.2. I am forecasting in the lower part of the range.

My Low Stock Price Forecast (LSPF) is the default value of $82.70 based on $3.94/share initial value. This is 24.4% less than the previous closing price, 20.6% less than the 52-week low, and 17.2% less than the 2021 low.

Over the past decade, Payout Ratio has ranged from 41.7% in ’12 to 83.2% in ’20 with a last-5-year mean of 79.4%. I am forecasting conservatively at 70.0% (only ’12 is lower).

These inputs land PAYX in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 7.1%.

PAR (using Forecast Average—not High—P/E) is 5.6%, which is less than I seek for a medium-size stock. 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 252 studies over the past 90 days (74 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.0%, 8.0%, 29.4, 21.1, and 79.4%, respectively. I am lower across the board. Value Line projects an average annual P/E of 26.0, which is higher than MS (25.3) and higher than mine (23.0).

MS high and low EPS are $5.95/share and $3.90/share vs. my $5.39 and $3.94. My high EPS is lower due to a lower forecast growth rate. MOS seems healthy in the current study.

MS LSPF of $82.60 implies a Forecast Low P/E of 21.2, which is consistent with the above-stated 21.1. This is 0.1% less than mine: almost identical. I think this is quite adequate since the stock is currently trading so close to the 52-week low.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 3.2 (upper limit generally regarded to be 1.5). Relative Value (M* data) is 0.99.

Based on Kim Butcher’s “quick and dirty DCF” method, the stock should be valued at 21 * (6.65 – [4.64 + 0.55)] = $30.66 (i.e. stock overvalued by 257%). Something seems invalid here, but I’m new to this metric and need to see how it holds up over a larger sample size before drawing any conclusions.

I would look to re-evaluate this stock under $99/share. That is, once in the BUY zone I would update the numbers and invest if the projected return is acceptable.

PRI Stock Study (6-27-23)

I recently did a stock study on Primerica Inc. (PRI) with a closing price of $189.37.

CFRA writes:

     > Primerica, Inc., together with its subsidiaries, provides financial
     > products to middle-income households in the United States and
     > Canada. The company operates in four segments: Term Life
     > Insurance; Investment and Savings Products; Senior Health; and
     > Other Distributed Products. The Term Life Insurance segment
     > Corporate and underwrites individual term life insurance products.
     > The Investment and Savings Products segment provides mutual funds
     > and various retirement plans, managed investments, variable and
     > fixed annuities, and fixed indexed annuities. The Senior Health
     > segment offers segregated funds; and medicare advantage and
     > supplement products. The Corporate and Other Distributed Products
     > segment provides mortgage loans; prepaid legal services that assist
     > subscribers with legal matters, such as drafting wills, living wills
     > and powers of attorney, trial defense, and motor vehicle-related
     > matters; ID theft defense services; auto and homeowners’ insurance;
     > home automation solutions; and insurance products, including
     > supplemental health and accidental death. It distributes and sells
     > licensed sales representatives.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.6% and 16.4%, respectively. Lines are generally up, straight, and parallel with EPS dips in ’18 and ’21. PTPM leads peer and industry averages despite trending lower [the last few years] going from 19.8% in ’13 to 18.2% in ’22 with a last-5-year mean of 21.0%.

Also over the past decade, ROE leads peer and industry averages while trending up from 13.0% in ’13 to 22.1% in ’22 with a last-5-year mean of 21.1%. Debt-to-Capital over the decade has been higher than peer and industry averages while trending up from 23.5% in ’13 to 54.8% in ’22 with a last-5-year mean of 50.1%. Interest Coverage is 19.9, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.4% YOY and 5.4% per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• YF projects YOY 4.6% and 5.2% for ’23 and ’24, respectively (4 analysts).
• Zacks projects YOY 4.5% and 5.3% for ’23 and ’24, respectively (5).
• Value Line projects 8.0% annualized growth from ’22-’27.
• CFRA gives ACE of 4.8% YOY and 5.3% per year for ’23 and ’22-’24, respectively (5).
• M* offers a 2-year ACE of 6.6% annualized growth.

I am discounting the one long-term estimate by 37.5% and forecasting 5.0% per year.

With regard to EPS growth:

• CNN Business projects 34.4% YOY and 22.5% per year for ’23 and ’22-’24, respectively (based on 5 analysts), along with 5-year annualized growth of 14.0%.
• MarketWatch projects annualized growth of 25.5% and 20.3% for ’22-’24 and ’22-’25, respectively (6 analysts).
• Nasdaq.com projects 11.3% and 11.0% for ’23-’25 and ’23-’26 [5, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 34.4% and 11.6% for ’23 and ’24 (5), along with 10.5% annualized growth for the next five years.
• Zacks projects YOY 34.0% and 11.5% for ’23 and ’24, respectively (5).
• Value Line projects 14.2% annualized growth from ’22-’27.
• CFRA projects 57.9% YOY and 32.8% per year for ’23 and ’22-’24, respectively (6).

These near-term estimates are unusually high, which makes me wonder if the company will be completing an acquisition. With EPS growth of only 0.9% over the last two years, though, a spike in ’23 will merely get closer to the historical trendline.

I am forecasting below the long-term estimate range (mean of three: 12.9%) at 8.0%. I will use ’22 EPS of $9.74/share rather than ’23 Q1 $11.40 (annualized) as the initial value.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 14.0 in ’17 to 19.1 in ’21 with a last-5-year mean of 16.8. The last-5-year-mean average P/E is 13.8. I am forecasting toward the lower end of the range (10-year median is 16.0). I typically lean toward a more conservative forecast, but I can’t go much lower here without the study ending up INVALID.

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 6.4 in ’20 to 13.7 in ’21 with a last-5-year mean of 10.9. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.90 based on $9.74/share initial value. This is 58.9% less than the previous closing price and 29.3% less than the 2022 low.

Over the past decade, Payout Ratio has ranged from 10.3% in ’17 to 22.6% in ’22 with a last-5-year mean of 17.8%. I am forecasting just below the range at 10.0%.

These inputs land PRI in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 3.3%.

PAR (using Forecast Average—not High—P/E) is -1.9%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead, but even this is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 8 studies over the past 90 days (my study and 3 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.1%, 11.0%, 15.9, 10.4, and 15.0%, respectively. I am lower across the board. Value Line projects an average annual P/E of 12.5, which is lower than MS (13.2) and higher than mine (11.5).

MS high (low) EPS is $18.54/share ($9.76/share) vs. my $14.31 ($9.74). My high EPS is lower due to a lower growth rate.

MS LSPF of $107.00 implies a Forecast Low P/E of 11.0 (vs. the above-stated 10.4). This is 5.4% greater than the default value $9.76 * 10.4 = $101.50, which results in more aggressive zoning. My LSPF is 27.2% lower than MS.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Based on my forecast EPS growth rate, PEG is 2.10 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 1.20. The stock is overvalued according to both metrics.

While MS provides too small a sample to draw any valid conclusions, MOS appears healthy in this study. The stock is beyond overcooked at the moment, though, after rallying ~60% in the last 12 months. I would look to re-evaluate under $112/share.

DG Stock Study (7-19-23)

I recently did a stock study on Dollar General Corp. (DG) with a closing price of $164.49. The original study is here.

M* writes:

     > A leading American discount retailer, Dollar General operates
     > over 19,000 stores in 47 states, selling branded and private-
     > label products across a wide variety of categories. In fiscal
     > 2022, 80% of net sales came from consumables (including paper
     > and cleaning products, packaged and perishable food, tobacco,
     > and health and beauty items), 11% from seasonal merchandise
     > (such as toys, greeting cards, decorations, and gardening
     > supplies), 6% from home products (for example, kitchen
     > supplies, small appliances, and cookware), and 3% from
     > apparel. Stores average roughly 7,500 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.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 9.1% and 16.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’21. PTPM leads peer and industry averages while decreasing from 9.3% in ’13 to 8.2% in ’22 with a last-5-year mean of 8.6%.

Also over the past decade, ROE leads peer and industry averages while trending higher from 19.1% in ’13 to 39.2% in ’22 with a last-5-year mean of 32.7%. Debt-to-Capital is lower than peer and industry averages until ’19 when it spikes higher and continues to increase. The last-5-year mean is somewhat uncomfortable at 61.4%.

Despite a Quick Ratio of only 0.06, Current Ratio is 1.32 and Interest Coverage is 13.1. Value Line gives an A rating for Financial Strength while M* gives a Standard rating for Capital Allocation.

With regard to sales growth:

• CNN Business projects 4.0% YOY and 5.4% per year for ’24 (FY ends Jan 31; I label by ending date) and ’23-’25, respectively (based on 25 analysts).
• YF projects YOY 4.0% and 6.6% for ’24 and ’25, respectively (26 analysts).
• Zacks projects YOY 3.9% and 6.6% for ’24 and ’25, respectively (22).
• Value Line projects 4.0% annualized growth from ’23-’28.
• CFRA projects 4.6% YOY and 5.9% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 6.5%.

I am forecasting at the bottom of the range: 4.0%.

With regard to EPS growth:

• CNN Business reports ACE of 5.7% YOY contraction and 1.3% growth per year for ’24 and ’23-’25, respectively (based on 25 analysts), along with 5-year annualized growth of 4.4%.
• MarketWatch projects annualized growth of 1.4% and 4.9% for ’23-’25 and ’23-’26, respectively (30 analysts).
• Nasdaq.com projects growth of 9.9% and 10.7% per year for ’24-’26 and ’24-’27, respectively (24, 16, and 5 analysts).
• Seeking Alpha projects 4-year annualized growth of 5.0%.
• YF projects YOY 5.7% contraction and 9.3% growth for ’24 and ’25 (29), along with 5.3% growth/year x5 years.
• Zacks projects YOY 6.1% contraction and 8.7% growth for ’24 and ’25 (22), along with 9.6% growth/year x5 years.
• Value Line projects 6.3% annualized growth from ’23-’28.
• CFRA projects 2.8% YOY contraction and 6.8% growth per year for ’24 and ’23-’25, respectively, along with a 3-year projected CAGR of 6.0%.
• M* projects long-term annualized growth of 10.6%.

I am forecasting below the long-term-estimate range (mean of six: 6.9%) at 4.0% per year based on ’23 EPS of $10.68/share.

My Forecast High P/E is 19.0. Over the past decade, high P/E has increased from 19.9 to 24.6 with a last-5-year mean of 22.9. Last-5-year-mean average P/E is 19.1. I am forecasting near the bottom of the range (only 18.8 in ’17 is lower).

My Forecast Low P/E is 13.0. Over the past decade, low P/E has ranged from 11.7 (’17) to 17.2 (’22) with a last-5-year mean of 15.3. I am forecasting near the bottom of the range [only ’17 and ’20 (11.8) are lower].

My Low Stock Price Forecast (LSPF) of $182.20 is the default based on $10.68/share initial value. This is 22.1% less than the previous close and 15.3% less than the 52-week 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 13.0%.

These inputs land DG in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) of 5.4% is too low for a large-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 248 studies done in the past 90 days (my study and 95 other 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 7.1%, 9.3%, 21.5, 14.5, and 17.9%. I am lower across the board. Value Line projects a future average annual P/E of 20.0, which is higher than MS (18.0) and mine (16.0).

MS high/low EPS is $16.71/$10.23 vs. my $12.99/$10.68 (per share). My high EPS is lower due to a lower growth rate and my overall EPS range is lower.

MS LSPF of $146.60 implies a Forecast Low P/E of 14.3, which is very close to the above-stated 14.5. MS LSPF is only 1.2% less than the default $10.23/share * 14.5 = $148.34, which results in more conservative zoning. MS LSPF remains 14.4% greater than mine.

MOS in the current study is robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG is 1.68 per Zacks using its 9.6% growth rate and much higher using my 4.0%. Relative Value is 0.79 (M*). These are suggestive of an overvalued and undervalued stock, respectively.

According to Kim Butcher’s “quick and dirty DCF,” fair value for the stock is 14.5 * [$19.00 – ($3.00 + $6.40)] = $232.00 (i.e. stock undervalued by 29.1%).

I would look to re-evaluate DG under $157/share.