Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

AMKR Stock Study (9-19-23)

Posted by on December 12, 2023 at 06:42 | Last modified: September 19, 2023 14:36

I recently did a stock study on Amkor Technology, Inc. (AMKR) with a closing price of $22.84.

M* writes:

     > Amkor Technology Inc is a provider of outsourced semiconductor
     > packaging and test services to integrated device manufacturers,
     > fabless semiconductor companies, and contract foundries. The
     > firm’s products are organized into two streams: advanced
     > products, including flip chip, wafer-level processing and
     > testing services; and mainstream products, including wirebond
     > packaging and testing. Roughly a third of the firm’s revenue
     > is generated in the United States, with the rest coming from
     > China, Ireland, Japan, Malaysia, Taiwan, Singapore, and
     > countries across the world.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.9% and 23.3%, respectively. Visual inspection is mediocre. Lines are generally up with pullbacks and narrowing. Sales and EPS decline in ’15 and ’19 with EPS also declining in ’18. The semiconductor industry is known to be highly cyclical. If by definition that means we never get a beautiful “up, straight, and parallel” graph, then I doubt that means we should altogether avoid investment. Perhaps it’s a matter of personal preference.

Over the past decade, PTPM lags peer and industry averages despite trending higher from 4.2% (’13) to 12.1 (’22) with a last-5-year mean of 7.9%. ROE lags the industry while tracking even with peers by increasing from 11.8% (’13) to 21.9% (’22) with a last-5-year mean of 14.9%. Debt-to-Capital is higher than peer and industry averages despite trending down from 63.4% (’13) to 28.1% (’22) with a last-5-year mean of 36.4%. The trifecta goes against this company for now.

Interest Coverage is 11.8 and Quick Ratio is 1.5. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the long-term estimate at 2.0% per year.

With regard to EPS growth:

Number of analysts behind these estimates is very few. Matching ’23 and ’24 numbers for YF and Zacks raises the specter of data duplication, but thankfully long-term estimates vary. Given only 3 of those and projections of near-term contraction, I am forecasting flat growth (below the 3.2% mean) and using ’22 EPS of $3.11/share as high EPS. For low EPS, I will use ’23 Q2 EPS [arbitrary] of $2.35/share (annualized).

My Forecast High P/E is 12.0. Over the past decade, high P/E has ranged from 9.4 in ’22 to 42.2 (upside outlier in ’15) with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 12.2. I am forecasting below the latter.

My Forecast Low P/E is 7.0. Over the past decade, low P/E has ranged from 3.9 in ’20 to 16.7 in ’15 (upside outlier) with a last-5-year mean of 7.5. The last-10-year median is 7.4. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $16.40 is default based on $2.35/share initial value. This is 28.2% less than the previous closing price and 1.9% greater than the 52-week low.

Since a dividend was initiated in 2020, Payout Ratio has been 2.9%, 6.7%, and 7.2%. I am forecasting conservatively near the bottom of the range at 3.0%.

These inputs land AMKR in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.6%. 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 only 21 studies over the past 90 days (my study and 9 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 7.5%, 7.3%, 13.4, 7.6, and 4.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 14.0, which is higher than MS (10.5) and mine (9.5).

MS high/low EPS is $3.57/$2.28 (per share) versus my $3.11/$2.35. Value Line projects $4.00/share [for high EPS], which is greater than both.

MS LSPF of $15.00 implies a Forecast Low P/E of 6.6 (vs. the above-stated 7.6). This is 13.4% less than the default value of $2.28 * 7.6 = $17.33, which represents more conservative zoning. MS LSPF is also 8.5% less than mine.

While the MS sample size is too small for a valid comparison, I consider MOS to be at least moderate in this study because all inputs are conservative [i.e. at the bottom (or below) respective ranges, below the mean, etc.]. Giving me pause is my TAR (over 15.0% preferred) being only 3.0% less [I often see this difference larger] than MS 13.6%. Also giving me pause is my EPS forecast far above the bottom of the analyst estimates’ range (-10.9%), but if any growth occurs at all then my 3.2% cushion is more than sufficient.

I track a few different valuation metrics. PEG is not available due to my 0% growth rate [indeterminate result] and Zacks’ absence of a long-term estimate. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 6.5 * [$7.00 – ($0.44 + $1.60)] = $32.24, which implies a 29.2% discount.

AMKR is a BUY under $21/share. With a forecast high price of $37.30, I need a stock price closer to $18.50 in order to meet my TAR criterion. In this instance, I am tempted to stick with that.

Categories: BetterInvesting® | Comments (0) | Permalink

MKTX Stock Study (10-4-23)

Posted by on December 9, 2023 at 06:23 | Last modified: October 7, 2023 10:00

I recently studied MarketAxess Holdings, Inc. (MKTX) with a closing price of $204.76. The original study is here.

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 recently trending lower from 44.9% in ’13 to 51.8% in ’16 to 47.1% in ’22 with a last-5-year mean of 49.9%.

Also over the past decade, ROE leads peer and industry averages going from 23.8% in ’13 to 29.5% in ’19 then decreasing to 24.6% in ’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 900 while Quick Ratio is 2.3. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

The estimates have come down since last quarter. I am forecasting near the bottom of the range at 7.0% per year.

With regard to EPS growth:

My 8.0% forecast is below the range of six long-term estimates (mean 11.1%). I will use ’22 EPS of $6.65/share as the initial value, which is very close to 2023 Q2 EPS of $6.71 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 39.6 (’13) to 62.1 (’22) with a last-5-year mean of 71.0. The last-5-year-mean average P/E is 54.9. I am forecasting below the range and closer to the current P/E of 30.5.

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 18.9 (’13) to 32.7 (’22) with a last-5-year mean of 38.8. The last-10-year median is 33.9. I am forecasting near the bottom of the range (only ’13 is lower).

My Low Stock Price Forecast (LSPF) of $192.90 is default based on $6.65/share initial value. This is 22.1% less than the previous closing price and 20.2% less than the ’21-’23 low.

Over the past decade, Payout Ratio ranges 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 on the BUY threshold with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.6%.

PAR (using Forecast Average—not High—P/E) of 8.0% 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 53 studies (my study and 21 other 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 11.2%, 12.3%, 50.0, 33.7, and 34.2%, respectively. I am lower across the board. Value Line’s projected average P/E of 40.0 is lower than MS (41.9) and much higher than mine (28.5).

MS high / low EPS are $12.02 / $6.67 versus my $9.77 / $6.65 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $12.25. I am lowest of the three.

MS LSPF of $209.40—invalid on today’s date—implies a Forecast Low P/E of 31.4: less than the above-stated 33.7. MS LSPF is 6.8% less than the default $6.67/share * 33.7 = $224.78, which is also invalid on today’s date. MS LSPF is a whopping 31.2% greater than mine.

My TAR (over 15.0% preferred) is less than the 21.7% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.7 and 3.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is extremely undervalued at 0.56.

MKTX is a BUY under $205. With a forecast high price of $342, TAR should meet my 15% criterion around $171/share.

Categories: BetterInvesting® | Comments (0) | Permalink

TSM Stock Study (9-18-23)

Posted by on December 8, 2023 at 07:08 | Last modified: September 18, 2023 14:51

I recently did a stock study on Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) with a closing price of $89.25. Previous studies are here and here.

M* writes:

     > Taiwan Semiconductor Manufacturing Co. is the world’s largest
     > dedicated chip foundry, with almost 60% market share. 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%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’19. PTPM is greater than peer and industry averages and recently trending higher, increasing from 36.2% (’13) to 50.5% (’22) with a last-5-year mean of 42.2%.

Also over the past decade, ROE is about even with peer and industry averages despite increasing from 23.1% in ’13 to 37.4% in ’22 with a last-5-year mean of 27.6%. Debt-to-Capital is less than peer and industry averages, ranging from 9.4% in ’17 to 26.0% in ’21 with a last-5-year mean of 17.2%.

Interest Coverage is >88 and Quick Ratio is 2.1. Value Line gives an A++ rating for Financial Strength. M* gives an “Exemplary” rating for Capital Allocation and assigns the company a “Wide” (and stable) economic moat.

With regard to sales growth:

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

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of six: 6.3%) at 4.0% per year. I will use 2023 Q2 EPS of $6.06/share (annualized) as the initial value rather than ’22 EPS of $6.43.

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 14.1 (’15) to 34.8 (’21) with a last-5-year mean of 27.4. The last-10-year median is 19.9, and the last-5-year-mean average P/E is 20.3. I am forecasting below the latter two.

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 9.2 (’22) to 15.5 (’19) with a last-5-year mean of 13.2 (26.3 outlier in ’21 excluded). I am forecasting near the bottom of the range [only ’22 and ’15 (9.5) are less].

My Low Stock Price Forecast (LSPF) of $64.70 is default based on $6.06/share initial value. This is 27.5% less than the previous closing price but 8.9% above the 52-week low.

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

These inputs land TSM in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 10.9%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 5.6%. 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 317 studies (my study and 131 other 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 8.9%, 8.0%, 23.0, 14.0, and 55.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (18.5) but higher than mine (14.5).

MS high / low EPS are $8.90 / $5.96 vs. my $7.37 / $6.06 (per share). Value Line’s high EPS is $10.00. I am lowest of the 3.

MS LSPF of $69.00 implies a Forecast Low P/E of 11.6, which is less than the above-stated 14.0. MS LSPF is 17.3% less than the default $5.96/share * 14.0 = $83.44, which results in more conservative zoning. MS LSPF is still 6.7% greater than mine.

My TAR (over 15.0% preferred) is much less than the 19.4% from MS.

Despite raising the P/E range compared to my previous TSM study, MOS seems robust.

I track a few different [usually conflicting] valuation metrics. PEG is 3.1 and 3.5 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.7. Kim Butcher’s “quick and dirty DCF” prices the stock at 13.0 * [$14.80 – ($2.60 + $10.00)] = $28.60, which suggests the stock to be 68.0% undervalued [this strikes me as NMF; I have emailed Kim to ask about it].

Per this study, TSM is a BUY under $80. With a forecast high price at $140.10, TAR should meet my personal [15%] criterion around $70/share.

Categories: BetterInvesting® | Comments (0) | Permalink

TPH Stock Study (9-14-23)

Posted by on December 6, 2023 at 06:55 | Last modified: September 14, 2023 14:02

I recently did a stock study on Tri Pointe Homes Inc. (TPH) with a closing price of $29.19.

M* writes:

     > Tri Pointe Homes Inc is an American construction company that
     > focuses on residential construction. The company designs and
     > builds single-family homes and condominiums through its portfolio
     > of six regional housing brands. Its largest regional brands
     > include Maracay Homes, which operates in Arizona, and TRI Pointe
     > and Pardee Homes, which operate in California, Nevada, and
     > Colorado. From a geographic perspective, California is TRI
     > Pointe’s largest source of revenue, followed by Arizona and
     > Nevada. The company also operates in Texas, Oregon, and
     > Virginia. TRI Pointe completes approximately 4,000 homes
     > annually with an average selling price around $500,000. TRI
     > Pointe also is involved in the sale and development of land.

Since 2014 (’13 excluded due to fractional EPS and substantially lower sales), this medium-size company has grown sales and earnings at annualized rates of 10.5% and 26.1%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’19 and EPS declines in ’16 and ’19. PTPM leads peer averages but lags the industry while trending up from 7.5% to 17.8% in ’23 with a last-5-year mean of 13.0%.

Also since 2014, ROE lags peer and industry averages despite trending up from 6.6% to 21.3% in ’23 with a last-5-year mean of 15.0%. Debt-to-Capital is less than peer and industry averages while trending down from 44.6% in ’14 to 33.9% in ’23 with a last-5-year mean of 37.5%.

Quick Ratio is an impressive 4.8 and Value Line gives a B+ rating for Financial Strength. M* provides no Interest Coverage number for the company, but I doubt the existence of any liquidity concerns with a Current Ratio of 18.7.

With regard to sales growth:

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

With regard to EPS growth:

I am forecasting below the 6-long-term-estimate mean (4.1%) at 2.0% per year, which is nowhere near the bottom of the range. I will use 2023 Q2 EPS of $4.76/share (annualized) as the initial value rather than ’22 EPS of $5.54.

My Forecast High P/E is 6.0. High P/E has trended down from 34.5 in ’14 to 5.1 in ’22 with a last-5-year mean of 8.6. The last-5-year-mean average P/E is 6.5. I am forecasting below the latter.

My Forecast Low P/E is 4.0. Low P/E has trended down from 21.7 in ’14 to 2.6 in ’22 with a last-5-year mean of 4.5. I am forecasting near the bottom of the range [only ’22 and ’20 (2.7) are lower].

My Low Stock Price Forecast (LSPF) of $23.50 is default based on $4.76/share initial value. This is 34.9% less than the previous closing price but 30.1% above the 52-week low.

These inputs land TPH in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 1.4%.

PAR (using Forecast Average—not High—P/E) is -2.2%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead but even that is much lower than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 21 studies (my study and 6 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.8%, 10.0%, 7.0, and 4.5, respectively. I am lower across the board. Value Line’s projected average annual P/E of 12.0 is much higher than MS (5.8) and mine (5.0).

MS high / low EPS are $8.39 / $4.76 vs. my $5.26 / $4.76. My high EPS is lower due to a lower growth rate. Value Line projects $4.15/share for high EPS, which is lower than both.

MS Low Stock Price Forecast (LSPF) of $18.00 implies a Forecast Low P/E of 3.8, which is less than the above-stated 4.5. MS LSPF is 16.0% less than the default $4.76/share * 4.5 = $21.42, which results in more conservative zoning. MS LSPF is also 5.3% less than mine.

My TAR (over 15.0% preferred) is far less than MS 16.0%, which confirms a robust MOS behind the current study. Corroborating the small MS sample size is Value Line’s projected forecast high price. MS has $8.39 * 7.0 ~ $59.00: near the top of Value Line’s ’26-’28 projected range at $60.00. I am worlds apart at $31.50/share.

I track a few different [conflicting] valuation metrics. PEG is 0.7 and 3.0 per Zacks and my projected P/E: undervalued vs. overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.0. Kim Butcher’s “quick and dirty DCF” prices the stock at 11.0 * [$4.50 – ($0.00 + $0.15)] = $47.85, which suggests the stock to be 39.0% undervalued.

I am not surprised to see TPH far from the BUY zone given a 72% run-up over the past year. Despite projecting average long-term returns (vs. my 1.4% TAR), the Value Line analyst agrees this is probably a stock to avoid at the current quotation.

Categories: BetterInvesting® | Comments (0) | Permalink

CLFD Stock Study (9-8-23)

Posted by on December 4, 2023 at 06:57 | Last modified: September 13, 2023 16:09

I recently did a stock study on Clearfield Inc. (CLFD) with a closing price of $33.39. The previous study is here.

M* writes:

     > Clearfield Inc mainly designs, manufactures, and distributes
     > fiber protection, fiber management and fiber delivery solutions
     > for communications networks. It provides a range of products
     > including copper assemblies, cassettes, box enclosures, fiber
     > connectors, frames, microduct, terminals, vaults, pedestal
     > inserts, FieldSmart, WaveSmart, and CraftSmart. The company
     > has a global presence with the majority of the revenue derived
     > from the United States. The company has two reportable segments
     > namely Clearfield segment and Nestor cables segment. The
     > majority of revenue is derived from Clearfield segment.

Over the past decade, this small-size company has grown sales and earnings at annualized rates of 15.2% and 20.2%, respectively. PTPM leads peer averages but lags the industry by dropping from 14.1% in ’13 to 7.6% in ’17 before trending higher in ’20-’22 to 23.6%. The last-5-year mean is 13.2%.

Also over the past decade, ROE leads peer and industry averages while tracing a similar asymmetric-U pattern ranging from 6.0% in ’17 to 35.9% in ’22 with a last-5-year mean of 15.8%. Debt-to-Capital is zero until ’20 (3.3%), has a last-5-year mean of 5.1%, and is much lower than peer and industry averages.

With regard to visual inspection, lines are exponential, jagged, and narrowing including a sales dip in ’17 and declining EPS in ’15 and ’17. One thing I don’t like is ’16 EPS not being eclipsed until ’21. ’16 EPS is up 73.5% YOY so this could be due to a nonrecurring anomaly [I should check the 10-K]. Even with that excluded, ’14 EPS is not eclipsed until ’20. I question whether we see consistent historical growth despite a nice annual growth rate.

If the visual inspection fails, then the stock could still be a candidate for a speculative position. Keeping this in mind, I will continue the analysis.

Interest Coverage and Quick Ratio are a laudable 71 and 5.3, respectively, and Value Line rates the company B+ for Financial Strength. I’m surprised the rating isn’t higher.

With regard to sales growth:

I am (arbitrarily) taking a 67% haircut from the one [Value Line] long-term estimate to get my forecast of 5.0% per year.

With regard to EPS growth:

Two long-term estimates are not much to go on. Value Line is a bit shocking being negative in the face of solid projected sales growth. I am forecasting above the long-term-estimate mean (1.3%) at 2.0%. However, given the bearish short- and long-term outlook, I will use the ’21 EPS of $1.47 (vs. $3.55 for ’22) as the initial value to get a high EPS of $1.62/share.

One other number I find shocking is MarketWatch’s ’22-’25 projection of 31.4%. This comes out of nowhere (’22-’24 is quite negative) and suggests substantial recovery in ’25. The high/low/average values all being equal for this estimate suggest one analyst for that $7.24/share. This is a 260% YOY increase from the ’24 high estimate [and an even greater percentage change from the ’24 average or low estimate]. I wonder what that analyst thinks will happen for CLFD in 2025?

My Forecast High P/E is 30.0. Over the past decade, high P/E has ranged from 31.9 (’21) to 77.1 (’17) with a last-5-year mean of 42.0. The last-5-year-mean average P/E is 30.9, but the current P/E is 10.2. It’s hard to wrap my head around these big numerical differences. 10.2 seems way too low, but 42.0 seems way too high. I am forecasting below the entire range and just below the 5-year-mean average P/E.

My Forecast Low P/E is 16.0. Over the past decade, low P/E has ranged from 11.1 (’13) to 40.4 (’17) with a last-5-year mean of 19.7. The last-10-year median is 22.2. I am forecasting toward the lower end of the range [’13, ’22 (12.4), ’21 (13.4), and ’20 (15.7) are lower].

My Low Stock Price Forecast (LSPF) of $23.50 is default based on $1.47/share initial value. This is 29.6% less than the previous close and 21.7% less than the 52-week low.

These inputs land CLFD in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) is 2.6%, which is less than the current yield on 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 167 studies (my study and 56 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.8%, 10.0%, 26.4, and 12.4, respectively. With a mean of 23.0, my P/E range is higher than Value Line’s projected average annual P/E of 20.0, which in turn is higher than MS (19.4). No MOS to see here.

MS high / low EPS are $5.69 / $3.59 vs. my $1.62 / $1.47 (per share). This is where my study gains huge MOS points. Even Value Line, which projects negative long-term growth, has a higher estimate ($3.00/share).

MS LSPF of $30.40 implies a Forecast Low P/E of 8.5, which is lower than the above-stated 12.4. MS LSPF is 31.7% less than the default $3.59/share * 12.4 = $44.52 [invalid on today’s date], which results in more conservative zoning [that needs to be lowered even further]. MS LSPF is 29.4% greater than mine.

My TAR (over 15.0% preferred) is much less than the 30.0% from MS.

MOS backing the current study is robust.

With regard to valuation metrics, PEG is not available due to an effectively negative growth rate in my study and no 5-year forecast provided by Zacks. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.33.

CLFD is a BUY under $29/share. With a forecast high price of $48.70, my TAR criterion should be met closer to $24.35 until/unless something convinces me a more bullish EPS outlook is warranted.

Categories: BetterInvesting® | Comments (0) | Permalink

WAL Stock Study (10-4-23)

Posted by on December 1, 2023 at 06:47 | Last modified: October 4, 2023 11:25

I recently studied Western Alliance Bancorp (WAL) with a closing price of $41.90. Previous studies are here and 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 sales and EPS at annualized rates of 22.3% and 24.5%, respectively. Lines are mostly up, straight, and parallel (including total assets). PTPM leads peer and industry averages while trending up from 41.2% (’13) to 57.5% (’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% (’13) to 21.0% (’22) with a last-5-year mean of 18.4%. Debt-to-Capital is lower than peer and industry averages despite increasing recently from 13.5% in ’19 to 55.7% in ’22 with a last-5-year mean of 26.2%.

Value Line rates the company B+ for Financial Strength.

ROAA increases from 1.36% in ’13 to 1.69% in ’22 with a last-5-year mean of 1.85%. This has been above 1.50% every year since ’15 until the current reading of 1.36%, which is a 10-year low.

With regard to sales growth:

I am forecasting toward the low end of the range at 4.0% per year.

With regard to EPS growth:

Only one of five long-term estimates is negative and its magnitude is the largest of all. My skepticism is somewhat offset by the fact that it (YF) has not changed in two quarters. My forecast is toward the lower end of the range (mean of five: 3.3%) at 1.0% per year. I will use an initial value of 2023 Q2 EPS $8.33/share (annualized) rather than ’22 EPS of $9.70.

My Forecast High P/E is 10.0. Over the past decade, high P/E has gone from 18.7 (’13) to 12.9 (’22) with a last-5-year mean of 13.4. My forecast—the last-5-year-mean average P/E of 10.0—is below the entire 10-year high P/E range.

My Forecast Low P/E is 3.0. Over the past decade, low P/E has gone from 8.2 (’13) to 5.7 (’22) with a last-5-year mean of 6.7. I am forecasting below the entire range (lowest was 4.1 in ’20).

My Low Stock Price Forecast (LSPF) of $25.00 is default based on $8.33/share initial value. This is 40.3% below the previous close and more than quintuple the 52-week low price of $7.50 seen the week of 3/8/23 (Black Swan, anyone?). Short of failing and having to shudder its doors, I don’t think $7.50 will be tested anytime soon

WAL starts paying a dividend in 2019 with an average Payout Ratio of 14.7% ever 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 2.2. Total Annualized Return (TAR) is 15.4%.

PAR (using Forecast Average—not High—P/E) is 6.4%, 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 237 studies (my study and 95 other 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 11.9%, 10.0%, 11.4, 6.1, and 14.2%, respectively. I am lower across the board.

MS high / low EPS are $14.04 / $8.76 versus my $8.75 / $8.33 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $30.10 implies a Forecast Low P/E of 3.4: much less than the above-stated 6.1. MS LSPF is 43.7% less than the default $8.76/share * 6.1 = $53.44 (invalid on today’s date), which results in more conservative zoning. Despite this huge discrepancy, MS LSPF remains 20.4% greater than mine.

My TAR (over 15.0% preferred) is much less than the 28.6% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 0.6 and 5.3 per Zacks and my projected P/E, respectively. I tend to discount calculations with low/fractional component as NMF and the latter uses my extremely low 1.0% growth rate (MS is 10-fold larger). The 0.6 translates to significantly undervalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is 0.53. In this case, two meaningful computations do not conflict.

WAL is a BUY under $40. With a forecast high price of $87.50, TAR should meet my 15% criterion around $43.75/share. Unusually, it’s already there even before crossing above the 3:1 U/D threshold. Especially given the conservative inputs used in this study, I would probably feel comfortable investing right now.

Categories: BetterInvesting® | Comments (0) | Permalink
Newer Entries