NICE Stock Study (10-11-23)

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $163.40. The original study is here.

M* writes:

     > Nice is an enterprise software company that serves the customer
     > engagement and financial crime and compliance markets. The company
     > provides data analytics-based solutions through both a cloud
     > platform and on-premises infrastructure. Within customer
     > engagement, Nice’s CXone platform delivers solutions focused on
     > contact center software and workforce engagement management,
     > or WEM. Contact center offerings include solutions for digital
     > self-service, customer journey and experience optimization, and
     > compliance. WEM products optimize call center efficiency,
     > leveraging data and AI analytics for call volume forecasting and
     > agent scheduling. Within financial crime and compliance, Nice
     > offers risk and investigation management, fraud prevention,
     > anti-money laundering, and compliance solutions.

Over the past decade, this medium-size company has grown sales and EPS at 10.3% and 12.9% per year, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’15 and EPS dip in ’16. PTPM leads peer and industry averages while trending up from 8.8% (’13) to 15.8% (’22) with a last-5-year mean of 14.1%.

Also over the past decade, ROE leads peer and industry averages while trending up from 4.4% (’13) to 8.7% (’22) with a last-5-year mean of 7.9%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.6%.

Quick Ratio is 2.0 and Interest Coverage is 21.8. Value Line assigns an A rating for Financial Strength while M* rates the company “Exemplary” for Capital Allocation.

With regard to sales growth:

• CNN Business projects 9.1% YOY and 8.7% per year for ’23 and ’22-’24, respectively (based on 12 analysts).
• YF projects YOY 8.5% and 11.1% for ’23 and ’24, respectively (14 analysts).
• Zacks projects YOY 8.3% and 11.7% for ’23 and ’24, respectively (6).
• Value Line projects 10.5% annualized growth from ’22-’27.
• CFRA projects 9.1% and 11.1% per year for ’22-’24 and ’22-’25, respectively.
• M* gives a 2-year ACE of 10.5% per year and projects 5-year annualized growth of 15.0% in its analyst note.

I am forecasting conservatively below the range at 8.0% per year.

With regard to EPS growth:

• CNN Business projects 11.0% YOY and 12.0% per year for ’23 and ’22-’24, respectively (based on 12 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects 12.7% and 13.7% per year for ’22-’24 and ’22-’25, respectively (15 analysts).
• Nasdaq.com projects 14.8% YOY and 15.7% per year for ’24 and ’23-’25 (7, 7, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 12.5%.
• YF projects YOY 18.0% and 11.9% for ’23 and ’24, respectively (13), along with 5-year annualized growth of 11.8%.
• Zacks projects YOY 11.8% and 12.0% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 12.7%.
• Value Line projects 14.9% annualized growth from ’22-’27.
• CFRA projects 13.6% YOY for ’24 and a 3-year CAGR of 16.0%.
• M* projects long-term annualized growth of 13.4%.

I am forecasting conservatively below the long-term-estimate range (mean of six: 12.9%) at 11.0% per year and using ’22 EPS of $4.00/share as the initial value rather than 2023 Q2 $4.60 (annualized).

My Forecast High P/E is 40.0. Over the past decade, high P/E ranges from 29.9 in ’15 to 107.3 in ’21 with a last-5-year mean of 76.8 (last-10-year median is 47.5). The last-5-year-mean average P/E is 60.3. The most recent three years all seem extreme (96.9, 107.3, 76.5). The last-10-year mean excluding these is 40.8. I am forecasting just below the latter.

My Forecast Low P/E is 32.0. Over the past decade, low P/E ranges from 20.9 in ’15 to 41.2 in ’22 (excluding 70.9 in ’21). The last-5-year mean (outlier excluded) is 36.9 and the last-10-year median is 34.6. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $128.00 is default based on $4.00/share initial value. This is 21.7% less than the previous close and 20.1% less than the 52-week low.

Payout Ratio decreases from 53.9% in ’13 to zero in ’18 where it has remained ever since. I will not forecast a dividend until reason is given to do otherwise [interesting that while MS (see below) has a median value of zero, the mean is 7.2% as 16 studies have values of 6.9% or greater].

These inputs land NICE in the BUY zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.5%.

PAR (using Forecast Average—not High—P/E) of 8.2% 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 41 studies (my study and 20 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 10.0%, 12.2%, 44.3, and 32.0, respectively. I am lower on the first three and equal on the latter. Value Line’s projected average annual P/E of 30.5 is lower than MS (38.2) and lower than mine (36.0).

MS high / low EPS are $7.80 / $4.15 versus my $6.74 / $4.00 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $15.25. I am lowest of the three.

MS LSPF of $136.40 implies a Forecast Low P/E of 32.9: greater than the above-stated 32.0. MS LSPF is 2.6% less than the default $4.15/share * 32.0 = $132.80, which results in more conservative zoning. MS LSPF is still 6.6% greater than mine.

My TAR (over 15.0% preferred) is less than the 14.8% from MS. Although the MS sample size is somewhat small, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.5 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 22.0 * [$18.55 – ($0.00 + $0.95)] = $387.20 thus suggesting the stock to be 57.8% undervalued.

NICE is a BUY under $225. With a forecast high price of $270, TAR should meet my 15% criterion around $135/share.