G Stock Study (8-14-23)
Posted by Mark on September 22, 2023 at 06:46 | Last modified: August 14, 2023 15:09I recently did a stock study on Genpact Ltd. (G) with a closing price of $37.18. The original study is here.
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.
Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 8.5% and 8.9%, respectively. Lines are most up, straight, and parallel except for EPS dips in ’14 and ’22. PTPM leads peer and industry averages despite falling from 14.4% in ’13 to 10.6% in ’22 with a last-5-year mean of 11.4%.
Also over the past decade, ROE slightly trails the industry while beating peer averages by ranging from 14.9% in ’14 to 21.4% in ’18 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 1.6 and Interest Coverage is 9.5. 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.”
With regard to sales growth:
- CNN Business projects 6.8% YOY and 7.7% for ’23 and ’22-’24, respectively (based on 10 analysts).
- YF projects YOY 5.4% and 9.3% for ’23 and ’24, respectively (10 analysts).
- Zacks projects YOY 6.0% and 8.5% for ’23 and ’24, respectively (5).
- Value Line projects 7.6% annualized growth from ’22-’27.
- CFRA projects 5.9% YOY and 7.5% per year for ’23 and ’22-’24, respectively.
I am forecasting just below the long-term estimate at 7.0% per year.
With regard to EPS growth:
- CNN Business projects 7.3% YOY and 9.7% per year for ’23 and ’22-’24, respectively (based on 10 analysts), along with 5-year annualized growth of 9.7%.
- MarketWatch projects 9.9% YOY and 8.8% per year for ’23 and ’22-’24, respectively (12 analysts).
- Nasdaq.com projects 6.2% YOY and 8.0% per year for ’24 and ’23-’25 (7, 7, and 3 analysts for ’23, ’24, and ’25).
- Seeking Alpha projects 4-year annualized growth of 9.5%.
- YF projects YOY 6.9% and 12.6% for ’23 and ’24, respectively (11), along with 5-year annualized growth of 9.9%.
- Zacks projects YOY 7.3% and 12.2% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 10.1%.
- Value Line projects 11.2% annualized growth from ’22-’27.
- CFRA projects 8.8% YOY and 10.4% 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: 10.1%) at 8.0% per year. My initial value is ’22 EPS of $1.88/share rather than 2023 Q2 EPS of $2.19 (annualized).
My Forecast High P/E is 22.0. Over the past decade, high P/E has trended up from 22.0 in ’13 to 28.8 in ’20 with a last-5-year mean of 27.7. The last-5-year-mean average P/E is 23.1. I am forecasting conservatively at the bottom of the range.
My Forecast Low P/E is 15.0. Over the past decade, low P/E has trended up from 15.8 in ’13 to 20.0 in ’21/’22 with a last-5-year average of 18.6 (downside outlier 12.4 in ’20 excluded). I am forecasting conservatively below the range.
My Low Stock Price Forecast (LSPF) of $28.20 is default based on $1.88/share initial value. This is 24.2% less than the previous closing price and 20.1% 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 a U/D ratio of 2.6. Total Annualized Return (TAR) is 11.1%.
PAR (using Forecast Average—not High—P/E) is 7.5%, 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 the total annualized return (TAR) of 11.1% instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 48 studies (my study and 15 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 8.1%, 9.8%, 25.0, 16.8, and 22.2%. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is lower than MS (20.9) and mine (18.5).
MS high / low EPS are $3.07 / $1.89 vs. my $2.76 / $1.88 (per share). My high EPS is lower due to a lower EPS growth rate.
MS LSPF of $31.30 implies a Forecast Low P/E of 16.6, which is very close to the above-stated 16.8. Being 11.0% greater than mine, this is relatively aggressive zoning.
My TAR (over 15.0% preferred) is less than the 16.8% from MS.
MOS backing the current study seems robust.
I track a few different valuation metrics. PEG is 1.3 and 2.0 per Zacks and my projected P/E, respectively; the latter is overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.74. Kim Butcher’s “quick and dirty DCF” prices the stock at 14.0 * [$6.00 – ($0.95 + $0.85)] = $58.80, which suggests the stock as undervalued by 37.0%.
Although the stock is a BUY under $36/share, I would look to re-evaluate closer to $30/share in hopes of qualifying TAR.
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