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TSM Stock Study (6-23-23)

Posted by on August 10, 2023 at 07:01 | Last modified: June 23, 2023 10:51

I recently did a stock study on Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) with a closing price of $103.13. The original study is here.

M* writes:

     > Taiwan Semiconductor Manufacturing Co. is the world’s largest
     > dedicated chip foundry, with over 57% market share in 2021 per
     > Gartner. TSMC was founded in 1987 as a joint venture of Philips,
     > the government of Taiwan, and private investors. It went public
     > as an ADR in the U.S. in 1997. TSMC’s scale and high-quality
     > technology allow the firm to generate solid operating margins,
     > even in the highly competitive foundry business. Furthermore,
     > the shift to the fabless business model has created tailwinds
     > for TSMC. The foundry leader has an illustrious customer base,
     > including Apple, AMD, and Nvidia, that looks to apply
     > cutting-edge process technologies to its semiconductor designs.

Over the past decade, this mega-size (> $50B sales per year) company has grown sales and EPS at annualized rates of 13.5% and 16.4%. Lines are up, straight, and parallel except for an EPS dip in ’19. PTPM is greater than peer and industry averages and trending higher in recent years, increasing from 36.2% in ’13 to 50.5% in ’22 with a last-5-year mean of 42.2%.

Also over the past decade, ROE has been greater than peer and industry averages from ’13-’17 before falling behind in ’18 despite trending higher in recent years. The last-5-year mean is 27.7%. Debt-to-Capital has been lower than peer and industry averages, trending down from 21.4% in ’13 to 9.4% before reversing higher to 23.2% in ’22. The last-5-year mean is 17.3%. Interest Coverage is over 93 and Quick Ratio is 2.0. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A++ rating for Financial Strength.

M* also assigns the company a Wide (stable) Economic Moat.

With regard to sales growth:

I am forecasting below both long-term estimates at 5.0%.

With regard to EPS growth:

Actual EPS spiked over 60% YOY in ’22.

Estimates have decreased since my study three months ago. I am forecasting toward the bottom of the long-term-estimate range (mean of five: 8.8%; this drops to 5.6% with the YF estimate excluded) at 4.0%. My initial value is ’22 EPS of $6.43/share rather than ’23 Q1 EPS of $6.47 (annualized).

My Forecast High P/E is 14.0. Over the past decade, high P/E has ranged from 14.1 (’15) to 34.8 (’21) with a last-5-year mean of 27.4. The last-5-year-mean average P/E is 20.3. I am forecasting below the entire range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E has ranged from 9.0 (’22) to 15.5 (19) with a last-5-year mean of 13.2 (26.3 in ’21 excluded). I am forecasting near the low end of the range (only 9.5 in ’15 and the ’22 value are lower).

My Low Stock Price Forecast (LSPF) is the default value of $64.30 based on $6.43/share initial value. This is 37.7% less than the previous closing price but still 8.2% above the 52-week low [tough to buy when near 52-week high!].

Over the past decade, Payout Ratio has ranged from 28.6% (’22) to 58.8% (’18) with outliers from ’15 (0%) and ’19 (90.6%) excluded. The last-5-year average (excluding ’19) is 46.1%. I am forecasting below the entire range at 28.0%.

These inputs land TSM 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 less than the current yield on T-bills at 0.6%. 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 394 studies over the past 90 days (my study and 113 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 9.6%, 8.5%, 22.5, 13.6, and 55.0%, respectively. I am lower across the board. Value Line projects an average annual P/E of 18.0, which is lower than MS (19.1) and much higher than mine (12.0).

MS high (low) EPS is $9.45/share ($6.08/share) vs. my $7.88 ($6.47). My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $65.60 implies a Forecast Low P/E of 10.8 (vs. the above-stated 13.6). This is 20.7% less than the default value $6.08 * 13.6 = $82.69, which represents more conservative zoning. It remains 2.0% higher than mine, however.

MOS seems quite 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. I calculate PEG ~4.0 (upper limit generally regarded to be 1.5) while Relative Value (M* data) is 0.78. In this case, the latter seems attractive whereas the former is not.

I would look to re-evaluate TSM under $76/share.

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LFUS Stock Study (6-22-23)

Posted by on August 8, 2023 at 06:34 | Last modified: June 22, 2023 10:10

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $278.96. The original study is here.

M* writes:

     > Littelfuse is a primary provider of circuit protection products
     > (such as fuses and relays) into the transportation, industrial,
     > telecommunications, and consumer electronics end markets. The
     > firm is also increasing its power semiconductor business, where
     > it predominantly serves industrial end markets and is breaking
     > into electric vehicle charging infrastructure.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 13.6% and 13.8%, respectively. Lines are generally up and parallel with sales declines in ’19 and ’20 along with EPS declines in ’15, ’19, and ’20. PTPM has been cyclical (recently trending up) albeit ahead of peer and industry averages with a last-5-year mean of 13.6%.

Also over the past decade, ROE has been cyclical (recently trending up) and above peer and industry averages with a last-5-year mean of 12.3%. Debt-to-Capital over the decade has generally been lower than the industry but higher than peer averages with a last-5-year mean of 30.6% (recently trending up). Value Line rates the company B++ for Financial Strength. M* gives a Standard rating for Capital Allocation, writing that the company has a sound balance sheet and low debt. Quick Ratio is 1.5, and Interest Coverage is 14.2.

With regard to sales growth:

I am discounting the one long-term estimate by 25.0% and forecasting 3.0% per year.

With regard to EPS growth:

Value Line is a downside outlier of six long-term EPS projections. Its left-margin table says 14.5% annualized from ’20-’22 to ’26-’28, but I can’t get this from numbers in the statistical array. Per the latter, 4.7% annualized growth is projected from 2021 through ’27 (my interpretation of ’26-’28). I will use the 4.7% in place of 0.6% and forecast conservatively toward the lower end of the range at 4.0% (mean of long-term estimates using the 0.6% for Value Line is 9.2%).

I do wonder about data duplication. I’ve seen this in the past with other companies being covered by few analysts. Three of the six long-term estimates here are exactly 12.0% (not 11.8%, 12.1%, etc.) despite coming from three different data sources; could those be the same few analysts?

I am using 2021 Q1 EPS of $13.78/share (annualized) as the initial value rather than ’22 EPS of $14.94 to be conservative

My Forecast High P/E is 21.0. Over the past decade, high P/E goes from 24.1 in ’13 to 48.5 in ’20 before heading down to 21.9 in ’22. The last-5-year mean high P/E is 34.6 and the last-5-year-mean average P/E is 27.7. I am forecasting below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E goes from 15.3 in ’13 to 28.2 in ’17 before heading down to 12.9 in ’22. The last-5-year mean is 20.7. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $179.10 based on $13.78/share EPS. This is 35.8% less than the previous closing price and 6.5% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 15.1% in ’22 to 36.3% in ’20 with a last-5-year average of 25.2%. I am forecasting just below the range at 15.0%.

These inputs land LFUS in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 5.5%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 1.3%. 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 124 studies over the past 90 days (my study and 58 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 8.4%, 8.4%, 25.8, 18.2, and 26.5%, respectively. I am lower across the board. Value Line projects an average annual P/E of 24.0, which is higher than MS (22.0) and much higher than mine (17.0).

MS high and low EPS are $21.20/share and $13.75/share versus my $16.77 and $13.78. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $186.80 implies a Forecast Low P/E of 13.6 (vs. the above-stated 18.2). This is 25.4% less than the default value $13.75 * 18.2 = $250.25, which results in more conservative zoning. It remains 4.3% 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 1.71 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 0.58. In this case, the latter looks attractive whereas the former does not.

I would look to re-evaluate LFUS under $222/share.

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LRN Stock Study (7-11-23)

Posted by on August 5, 2023 at 06:30 | Last modified: July 11, 2023 13:53

I recently did a stock study on Stride Inc. (LRN) with a closing price of $36.86.

M* writes:

     > Stride Inc is an American online educational company. The company
     > offers alternative programs to traditional on-campus schooling.
     > It also operates state-funded virtual charter schools around the
     > United States. The educational programs for K-12 students are
     > usually monitored by parents and provide virtual classroom
     > environments where teachers meet with students online, by phone,
     > or in-person. The company’s contractual agreements with various
     > school districts to offer its curriculum programs provide a
     > majority of the company’s revenue. The company lines of business
     > are Managed Public School Programs, Institutional, and Private
     > Pay Schools and Other.

Over the past decade, this medium-size company has grown sales and EPS at 6.7% and 11.9% per year [excluding fractional EPS years of ’14, ’15, ’16, and ’17 that would otherwise inflate the latter to 21.3%], respectively. Lines are somewhat up and parallel, but visual inspection is mediocre. Sales dips in ’16, and 2015 sales is not exceeded until ’19. EPS dips in ’14, ’15, ’16, ’17, and ’20; 2013 EPS is not exceeded until ’19. I would therefore consider this for a smaller [speculative] position size.

Over the past decade, PTPM trails industry and peer averages while tracing a U-pattern from 5.5% in ’13 to 0.6% in ’17 to 8.7% in ’22 with a last-5-year mean of 5.2%. ROE slightly trails the industry while roughly matching peer averages by going from 5.6% in ’13 to 0.1% in ’17 to 13.8% in ’22 with a last-5-year mean of 7.4%. Debt-to-Capital is lower than peer and industry averages going from 6.3% in ’13 to 3.7% in ’19 before increasing to 41.0% in ’22 for a last-5-year mean of 22.3%.

Quick Ratio is 3.0, Interest Coverage is 156,628 / 8,277 = 18.9, and Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

I am forecasting conservatively below the range at 5.0%.

With regard to EPS growth:

Five of six long-term estimates are exactly the same (20.0%), which makes me suspicious of data duplication. The mean [of six] is 18.0%. Assuming two different analyst (combinations) are responsible for 20.0% across five data sources, the mean [of three] would be 15.9%. I will forecast conservatively at 10.0% and use ’22 EPS of $2.52/share as the initial value rather than ’23 Q3 $2.61 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E has trended down from 42.9 in ’13 to 16.9 in ’22 with a last-5-year mean of 33.8. The last-5-year-mean average P/E is 25.3. I am forecasting near the bottom of the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E has trended down from 22.0 in ’13 to 10.2 in ’22 with a last-5-year mean of 16.7. The last-10-year median is 23.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default $25.20 based on $2.52/share initial value. This is 31.6% less than the previous close, 17.9% less than the 52-week low, and 1.6% less than the 2022 low.

These inputs land LRN in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) of 8.3% 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 22 studies over the past 90 days (my study and 7 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.0%, 9.5%, 25.0, and 15.8, respectively. I am lower on all except EPS growth (10.0%), but I can’t read too much into such a small sample size. Value Line projects an average annual P/E of 20.0, which is lower than MS (20.4) and much higher than mine (13.5).

MS high/low EPS is $4.06/$2.46 vs. my $4.06/$2.52 (per share). This may be the closest agreement I have seen thus far.

MS LSPF of $29.40 implies a Forecast Low P/E of 12.0 vs. the above-stated 15.8. MS LSPF is 24.4% lower than the default value of $2.46/share * 15.8 = $38.87, which results in more conservative zoning. MS LSPF remains 16.7% greater than mine.

Despite the small MS sample size, MOS in this study seems to be at least moderate if not 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. Both are 0.6 (per Zacks and M* data, respectively), which suggests the stock to be undervalued.

I am also familiarizing myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock price is undervalued by 32.0%: 9.5 * [$6.90 – ($0.00 + $0.25)] = $63.18.

I would look to purchase shares under $35 (a few percentage points lower to boost projected return above my threshold).

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OLED Stock Study (6-21-23)

Posted by on August 4, 2023 at 06:55 | Last modified: June 21, 2023 10:58

I recently did a stock study on Universal Display Corp. (OLED) with a closing price of $141.28. The original study is here.

M* writes:

     > Universal Display Corp researches, develops and manufactures
     > organic light-emitting diode, or OLED, technologies for use
     > in displays for mobile phones, tablets, televisions, wearables,
     > personal computers, automotive interiors, and the solid-state
     > lighting market. OLED technologies are an alternative to a
     > light-emitting diode, or LED, technologies, in the solid-state
     > lighting market, and liquid crystal displays in the flat-panel-
     > display market. A large majority of the firm’s revenue is
     > generated in South Korea, with the rest coming from Japan,
     > China, the United States, and other countries across the world.

Over the past decade, this small-size company has grown sales at an annualized rate of 17.2%. EPS has grown 15.1% per year excluding ’14 and ’15 (including these years of fractional EPS results in 22.1% annualized rate). Lines are mostly up, straight, and parallel with sales declines in ’18 and EPS declines in [’14, ’15, and] ’18 and ’20. PTPM has led peer and industry averages while generally trending higher from 26.6% to 43.5% with a last-5-year mean of 38.1%.

Since ’15, ROE leads peer and industry averages while trending higher from 3.2% to 17.3% in ’22 with a last-5-year mean of 15.3%. Debt-to-Capital averages 0.9% over the last five years as the company has zero long-term debt: much lower than peer and industry averages. Quick Ratio is 6.43, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

Given the projected contraction in ’23, I am forecasting to the low side at 6.0%.

With regard to EPS growth:

I am forecasting just below the long-term-estimate range (mean of six: 15.7%) at 8.0%. Also to be conservative, I am using 2023 Q1 EPS of $4.18/share (annualized) rather than ’22 EPS of $4.40.

My Forecast High P/E is 35.0. Over the past decade, high P/E has ranged from 25.0 in ’13 to 88.4 in ’17 (excluding triple-digit outliers in ’15 and ’18) with a last-5-year mean of 68.9. The last-5-year-mean average P/E is 49.6. I am forecasting toward the bottom of the range (only ’13 is lower).

My Forecast Low P/E is 20.0. Over the past decade, low P/E has ranged from 15.6 in ’13 to 39.6 in ’16 (excluding upside outliers 82.6 in ’15 and 63.5 in ’18) with a last-5-year mean of 30.2. I am forecasting toward the bottom of the range (only the ’13 value is lower).

My Low Stock Price Forecast (LSPF) is the default value of $83.60 (based on $4.18/share initial value). This is 40.8% less than the previous close and 6.5% less than the 52-week low.

The stock has paid a dividend since 2017. Payout Ratio has increased from 5.5% that year to 27.3% in ’22 with a last-5-year mean of 20.5%. I am forecasting conservatively at 10.0% (only ’17 is less).

These inputs land OLED in the HOLD zone with a U/D ratio of 1.3. Total Annualized Return (TAR) is 9.0%.

PAR (using Forecast Average–not High–P/E) is less than I seek at 4.0%. 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 211 studies over the past 90 days (my study and 62 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 13.0%, 12.1%, 40.0, 25.0, and 16.1%, respectively. I am equal on Forecast Low P/E and lower on the other four inputs. Value Line projects an average annual P/E of 30.0, which is lower than MS (32.5) and higher than mine (27.5).

MS high (low) EPS is $7.70/share ($4.06/share) versus my $6.14 ($4.18). My high EPS is lower due to a lower growth rate.

MS LSPF of $89.40 implies a Forecast Low P/E of 22.0 (vs. the above-stated 25.0). This is 11.9% less than the default value $4.06 * 25.0 = $101.50, which results in more conservative zoning. It remains 6.9% higher than mine, however.

PEG ratio is another value check I have recently begun to monitor. Zacks reports PEG of 2.3 where 1.50 is generally regarded as the upper limit. Perhaps I should also monitor Relative Value = current P/E / 5-year-mean average P/E = 0.68. In this case, the latter looks attractive whereas the former does not.

MOS seems robust in this study.

I would look to re-evaluate OLED under $116/share.

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FELE Stock Study (6-18-23)

Posted by on August 2, 2023 at 06:51 | Last modified: June 18, 2023 10:32

I recently did a stock study on Franklin Electric Company, Inc. (FELE) with a closing price of $100.53.

M* writes:

     > Franklin Electric Co Inc designs, manufactures, and distributes
     > water and fuel pumping systems, composed of submersible motors,
     > pumps, electronic controls, water treatment systems, and
     > related parts and equipment. It has three segments; The Water
     > Systems segment designs, manufactures and sells motors, pumps,
     > drives, electronic controls, monitoring devices, and related
     > parts and equipment for use in groundwater, water transfer, and
     > wastewater, The Fueling Systems segment designs, manufactures
     > and sells pumps, pipe, sumps, fittings, vapor recovery
     > components, electronic controls, monitoring devices, and
     > related parts and equipment for use in fueling system
     > applications and the Distribution segment sells and provides
     > presale support and specifications to the installing contractors.

This medium-size company has grown sales and EPS at annualized rates of 7.9% and 10.4% over the past decade. Lines are mostly up, straight, and parallel except for sales dips in ’15 and ’20 along with EPS dips in ’14 and ’19 (flat in ’17).

Over the past decade, PTPM is above industry but below peer averages while ranging from 8.6% in ’14 to 11.6% in ’13 with a last-5-year mean of 10.2%. ROE is below peer averages but slightly better than the industry while increasing from 14.0% in ’13 to 17.9% in ’22 with a last-5-year mean of 14.5%.

Also over the past decade, Debt-to-Capital has been below peer and industry averages with a last-5-year mean of 18.0%. Quick Ratio is 0.67 ($600M inventory) and Interest Coverage is 19.6. Value Line gives an A rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 5.0%.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of six: 11.5%) at 7.0%. My initial value is ’22 EPS of $3.97 rather than Q1 ’23 $4.13/share (annualized).

My Forecast High P/E is 23.0. Over the past decade, high P/E has ranged from 23.1 in ’18 to 33.9 in ’20 with a last-5-year mean of 27.9. The last-5-year-mean average P/E is 23.5. I am forecasting below the range.

My Forecast Low P/E is 17.0. Over the past decade, low P/E has ranged from 14.4 in ’16 to 23.8 in ’14 with a last-5-year mean of 19.1. I am forecasting toward the bottom of the range [only ’16 and ’15 (15.1) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $70.20 (based on $3.97/share initial value). This is 30.2% less than the previous closing price and 2.6% above the 52-week low.

Over the past decade, Payout Ratio has ranged from 18.2% in ’13 to 29.0% in ’20 with a last-5-year mean of 23.9%. I am forecasting conservatively below the range at 18.0%.

These inputs land FELE in the HOLD zone with a U/D ratio of 0.8. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) is 3.0%, which is less than the current yield of T-bills. 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 13 studies over the past 90 days (my study and 4 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 8.4%, 7.3%, 25.9, 18.7, and 23.9%, respectively. I am lower across the board. Value Line projects an average annual P/E of 25.0, which is higher than MS (22.3) and mine (20.0).

MS high and low EPS are $5.81/share and $3.98/share versus my $5.57 and $3.97. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $68.10 implies a low P/E of 17.1 (vs. the above-stated 18.7). This is 8.5% less than the $3.98 * 18.7 = $74.43 default value, which results in lower-risk zoning. MS LSPF is also 3.0% less than mine.

PEG ratio is another value check that I have recently begun to monitor. PEG is 1.92 per Zacks where 1.50 is generally regarded as the upper limit. Granted we are now in a bull market, but I remain uncertain how useful PEG will be.

Due to the low MS sample size, I don’t want to base much on that comparison alone. Because I also selected conservative inputs at every turn relative to ranges and analyst estimates, I feel MOS is robust in the current study.

With the stock up 13.7%, 22.0%, and 42.9% in the last 3, 6, and 12 months, respectively, I am not surprised to see it out of the BUY zone at this time. I would look to re-evaluate under $82/share.

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