YETI Stock Study (4-25-24)

Posted by Mark on April 24, 2024 at 09:36 | Last modified: April 25, 2024 10:26

I recently did a stock study on YETI Holdings (YETI, $35.67). Previous studies are here, here, and here.

M* writes:

     > YETI Holdings Inc is a designer, marketer, and distributor of
     > premium products for the outdoor and recreation market sold under
     > the YETI brand. The company offers products including coolers and
     > equipment, drinkware, and other accessories. Its trademark products
     > include YETI Tundra, Hopper, YETI TANK, Rambler, Colster, Rambler
     > among others. The company distributes products through wholesale
     > channels and through direct-to-consumer, or DTC, channels.

Since 2018 when this medium-size company began to be publicly traded, sales and earnings have grown at annualized rates of 17.7% and 22.8%, respectively. Lines are up and somewhat parallel due to EPS dips in ’19 and ’22 (latter due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line). PTPM leads peer and industry averages despite trending sideways (range 7.3% in ’22 to 19.0% in ’21) with a last-5-year mean of 13.2%.

Over the last five years, ROE generally leads peer and industry averages despite falling from 57.3% in ’19 to 26.4% in ’23 with a mean of 43.4%. Debt-to-Capital is less than peer and industry averages in falling from 91.9% in ’18 to 19.6% in ’23 with a last-5-year mean of 36.4%.

Quick Ratio is 1.34, and M* lists no Interest Coverage ratio. I usually assume this to a good thing (very large to infinity), but it can’t hurt to verify. Simply Wall Street writes:

     > YETI Holdings has a total shareholder equity of $723.6M and total
     > debt of $79.4M, which brings its debt-to-equity ratio to 11%. Its
     > total assets and total liabilities are $1.3B and $573.6M
     > respectively… EBIT is $225.5M making its interest coverage
     > ratio 239.3. It has cash and short-term investments of $439.0M.

Assumption confirmed.

Value Line gives a “B” rating (down from “B+” six months ago) for Financial Strength despite writing in its analyst note: “the company is on solid footing financially for those on the conservative side.” The latter sounds encouraging while a “B” rating is as low as I’ll go. I don’t love the apparent contradiction.

With regard to sales growth:

• YF projects YOY 8.5% and 7.8% for ’24 and ’25, respectively (based on 17 analysts).
• Zacks projects YOY 8.9% and 7.9% for ’24 and ’25, respectively (8 analysts).
• Value Line projects 9.4% annualized growth from ’23-’28.
• CFRA projects 9.0% YOY and 8.4% per year for ’24 and ’23-’25, respectively (17).
• M* offers a 2-year annualized ACE of 8.6%.

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

• MarketWatch projects growth of 10.7% and 9.6% per year for ’23-’25 and ’23-’26 (based on 17 analysts).
• Nasdaq.com projects growth of 15.8% YOY and 8.6% per year for ’25 and ’24-’26 [9/9/1 analyst(s) for ’24/’25/’26].
• Seeking Alpha projects 4-year annualized growth of 11.3%.
• YF projects YOY 9.8% and 11.7% for ’24 and ’25, respectively (17), along with 5-year annualized growth of 8.6%.
• Zacks projects YOY 10.6% and 12.1% for ’24 and ’25, respectively (10), along with 5-year annualized growth of 11.3%.
• Value Line projects annualized growth of 12.2% from ’23-’28.
• CFRA projects 27.8% YOY and 19.7% per year for ’24 and ’23-’25, respectively (16).

I am forecasting below the long-term-estimate range (mean of four: 10.8%) at 8.0% per year. My initial value will be ’23 EPS of $1.94/share that represents an 88% YOY increase. Although I don’t like to project forward from an excessive high, being 19% lower than ’21 EPS makes it normalized.

My Forecast High P/E is 28.0. High P/E falls from 31.1 in ’18 to 27.9 in ’23 (interim high 80.6 in ’22) with a last-5-year mean of 52.4 and a last-5-year-mean average P/E of 36.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Forecast Low P/E is 16.0. Low P/E falls from 18.0 in ’18 to 17.9 in ’23 (interim low 8.6 in ’20) with a last-5-year mean of 20.8. I am forecasting below the latter (’23 being the second-lowest yearly value at 17.9).

My Low Stock Price Forecast (LSPF) of $28.30 is default based on initial value of $1.94/share. This is 20.7% less than the previous close and 18.4% less than the 52-week low.

These inputs land YETI in the BUY zone with a U/D ratio of 5.6. Total Annualized Return (TAR) is 16.6%.

PAR (using Forecast Average—not High—P/E) of 11.4% 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 start by comparing my inputs with those of Member Sentiment (MS). Based on only 32 studies (my study and 9 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 8.9%, 10.8%, 30.0, and 18.9, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (24.5) and lower than mine (22.0).

MS high / low EPS are $3.27 / $1.95 versus my $2.85 / $1.77 (per share). My high EPS range is lower due to a lower growth rate. Value Line’s high EPS is $4.00: much higher than both.

MS LSPF of $27.90 implies a Forecast Low P/E of 14.3: lower than the above-stated 18.9. MS LSPF is 24.3% less than the default $1.95/share * 18.9 = $36.86 [INVALID on today’s date] resulting in more conservative zoning. MS LSPF is also 1.4% less than mine.

TAR (over 15.0% preferred) is lower than MS 20.3%. Despite the small MS sample size, bringing in Value Line and other analyst estimates compels me to evaluate MOS as robust in the current study.

With regard to valuation, PEG is 1.3 and 2.1 per Zacks and my projected P/E, respectively: the latter overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite cheap at 0.5.

The ’23 EPS rebound from an excursive ’22 makes for a much easier SSG. No fancy manipulation necessary to get numbers that seem reasonable and no wild confusion from MS masses.

YETI is a BUY under $40 that meets my 15% TAR criterion right now (forecast high price $77).