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

HEI Stock Study (5-28-24)

Posted by on June 29, 2024 at 07:13 | Last modified: May 28, 2024 12:53

I recently did a stock study on HEICO Corp. (HEI) with a closing price of $217.31. Previous studies are here, here, and here.

M* writes:

     > Heico is an aerospace and defense supplier that focuses on creating niche
     > replacement parts for commercial aircraft and components for defense
     > products. In commercial aerospace, Heico is the largest independent
     > producer of replacement aircraft parts, primarily for engines. In the
     > defense market, the company produces niche subcomponents used in
     > targeting technology as well as simulation equipment, among other things.
     > It operates as two segments: the flight support group, or FSG, and the
     > electronic technologies group, or ETG, both of which supply the aerospace
     > and defense sectors to different degrees. The company is highly
     > acquisitive, focusing on companies in similar or adjacent markets that
     > are generating strong cash flow with the potential for growth.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 9.6% and 13.6%, respectively. Lines are mostly up, straight, and parallel with a slight dip in ’20 [and ’21 for EPS].

Over the last decade, PTPM leads industry and peer averages by ranging from 17.5% in ’14 to 22.2% in ’22 with a last-5-year mean of 20.7%. ROE leads peers and lags the industry while declining from 17.8% (’14) to 13.8% (’23) with a last-5-year mean of 15.5%. Debt-to-Capital is less than peer and industry averages while ranging from 10.0% in ’21 to 44.3% in ’23 with a last-5-year mean of 23.5%.

Quick Ratio is 1.3 and Interest Coverage is 6.4. Value Line gives an “A” rating for Financial Strength, and M* gives a “Standard” rating for Capital Allocation.

With regard to sales growth:

I am forecasting below the range at 14.0% per year.

With regard to EPS growth:

My 15.0% forecast is less than the long-term-estimate range (mean of five: 17.8%). Initial value is ’23 EPS of $2.91/share rather than 2024 Q1 EPS of $3.06 (annualized).

My Forecast High P/E is 45.0. Over the last decade, high P/E ranges from 32.3 in ’15 to 67.4 in ’21 with a last-5-year mean of 63.1. The trend is higher, but I don’t expect this to continue forever. The last-5-year-mean average P/E is 51.7. My forecast is below the latter.

My Forecast Low P/E is 35.0. Over the past decade, low P/E trends higher with a range from 19.8 in ’17 to 50.8 in ’23 and a last-5-year mean of 40.3. My forecast is below the latter.

My Low Stock Price Forecast (LSPF) of $153.60 is the 52-week low: 29.3% lower than previous close. The default based on initial value given above seems unreasonably low at $101.90 (53.1% lower than previous close).

Over the past decade, Payout Ratio (PR) ranges from 5.7% to 7.7% with a last-5-year mean of 6.7%. I am forecasting conservatively at 5.0%.

These inputs land HEI in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 4.0%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 1.6%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR albeit still lower than the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 38 studies done in the past 90 days (my study and 8 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 14.0%, 15.0%, 56.3, 40.3, and 6.8%, respectively. I am equal to or lower across the board. Value Line projects a future average annual P/E of 40.0 that is less than MS (48.3) and equal to mine.

MS high / low EPS are $6.15 / $2.97 versus my $5.85 / $2.91 (per share). Value Line’s high EPS of $6.50 is greater than both.

MS LSPF of $128.80 implies a Forecast Low P/E of 43.4 versus the above-stated 40.3. MS LSPF is 7.6% greater than the default $2.97/share * 40.3 = $119.69, which results in more aggressive zoning. MS LSPF is 16.2% less than mine, however.

TAR (over 15.0% preferred) is much less than MS 11.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 3.3 and 4.1 per Zacks and my projected P/E: significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is also expensive at 1.4.

Up 23.1% over the past year, the stock continues to be on a roll and is nowhere close to the BUY zone. Shareholders are likely quite happy with this 1-in-5 stock that wildly defies its fundamentals. While I can’t recommend an entry here, it’s tough to recommend a sale because of the historical stock appreciation and persistently high analyst growth estimates.

HEI is a BUY under $181/share. With a forecast high price ~$263, the BI TAR criterion would not be met until ~$132.

Categories: BetterInvesting® | Comments (0) | Permalink

FWRD Stock Study (5-24-24)

Posted by on June 28, 2024 at 06:57 | Last modified: May 24, 2024 16:40

I recently did a stock study on Forward Air Corp. (FWRD, $12.50). Previous studies are here, here, and here.

M* writes:

     > Forward Air Corp is an asset-light freight and logistics company. The
     > company’s operating segment includes Expedited Freight and Intermodal.
     > It generates maximum revenue from the Expedited Freight segment. The
     > expedited Freight segment operates a comprehensive national network to
     > provide expedited regional, inter-regional and national LTL (less-than-
     > truckload) services. It also offers customers local pick-up and
     > delivery and other services including final mile, truckload, shipment
     > consolidation and deconsolidation, warehousing, customs brokerage, and
     > other handling. The Company conducts business in the United States,
     > Canada, and Mexico.

The Rule of Five says for every five stocks purchased through the BI process, one can be expected to vastly underperform. This would be the one. It’s a true fallen angel.

From what I can tell, the medium-size company endured a tumultuous acquisition of Omni Logistics that closed in Jan 2024. The process involved C-suite conflict, resignation of the CEO, and a last-ditch effort to back out of the deal. A class-action lawsuit by shareholders is pending.

This First Cut is to determine whether the market has vastly overreacted to bad news—akin to the banks one year ago.

Articles to read for more background on the story may be found here, here, and here.

My previous studies can be referenced to see how the company performs pre-merger.

Due to depressed/negative earnings, FWRD no longer passes visual inspection and would surely score low on Quality. This would not be suitable as a core portfolio position. Any purchase of the stock is probably best regarded as gambling since we have no idea how it will perform as a combined entity under new management.

With regard to sales growth:

Analysts project the acquisition to dramatically increase sales. Growth rate is uncertain, however. I am forecasting below the ’25 YOY estimates at 5.0% per year.

With regard to EPS growth:

Consensus is that 2024 will be a down year but only some are predicting actual loss. Percentage changes from negative numbers make no sense. Value Line and YF are the two sources that could be giving credible estimates. I’m skeptical of latter being unchanged from nine months ago. The former is wildly optimistic.

I am forecasting zero growth to be conservative. Initial value will be 2023 EPS of $1.64/share. Value Line predicts the acquisition to be dilutive for ’24 and accretive thereafter. If the company is well-run, then growth should resume by ’25.

My Forecast High P/E is 17.0. Over the past decade (74.0 outlier in ’23 excluded), high P/E ranges from 17.6 in ’22 to 56.4 in ’16 with a last-5-year mean of 28.1. The last-5-year-mean average P/E is 24.4 ($12.50 / $1.64 = 7.6 makes sense to me as current P/E despite website stating -5.5). I am forecasting below the range.

My Forecast Low P/E is 5.0. Over the past decade, low P/E ranges from 11.8 in ’22 to 40.0 in ’16 with a last-5-year mean of 20.8. I am forecasting below the entire range and less than the current P/E.

My Low Stock Price Forecast (LSPF) of $8.20 is default based on initial value given above. This is 34.4% less than the previous close and 26.8% less than the 52-week low.

Over the past decade, the lowest Payout Ratio (PR) is 13.4% in ’22 and the last-5-year mean is 24.2% (excluding ’23 outlier of 58.5%). The current dividend yield is an attractive 7.7%. With the company taking on substantial debt to make the acquisition, though, I will forecast well below the range by setting the dividend aside completely (i.e. zero).

These inputs land FWRD in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 17.4%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.6%. 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 six studies in the past 90 days (my study and one other outlier excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.3%, 12.0%, 23.0, 16.4, and 28.5%, respectively. I am lower across the board. Value Line projects average annual P/E of 23.0 that is higher than MS (19.7) and much higher than mine (11.0).

MS high / low EPS are $5.12 / $2.94 versus my $1.64 / $1.64 (per share). I use zero growth and a minimally low EPS. Value Line’s high EPS of $3.00 is in the middle.

MS LSPF of $18.70 (INVALID on today’s date) implies a Forecast Low P/E of 6.4 versus the above-stated 22.0. MS LSPF is 61.2% less than the default $2.94/share * 16.4 = $48.22 (also INVALID). MS LSPF is 128% greater than mine, though. One of the six studies (from 5/23/24) has a LSPF of -$15.90 (stock prices cannot be negative). The other five studies were done at least three weeks ago with stock ~$22.

TAR (over 15.0% preferred) is less than MS 35.7%. I can’t rely too much on comparison with a tiny MS sample. Value Line clearly thinks the company will survive and I’ve discounted EPS growth to zero off an already-depressed base (down 77.0% YOY in ’23). I believe MOS is robust in the current study.

With regard to valuation, Relative Value [(current P/E) / 5-year-mean average P/E] is fire-sale cheap at 0.31.

Despite a robust MOS, my major concerns include:

FWRD is a BUY under $13/share. Were visual inspection successful, the BI TAR criterion would be satisfied right now. As a low-quality stock, however, I would limit any purchase to speculative capital only.

Categories: BetterInvesting® | Comments (0) | Permalink

NICE Stock Study (5-23-24)

Posted by on June 26, 2024 at 06:44 | Last modified: May 23, 2024 09:13

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $196.58. Previous studies are here and 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 last 10 years, this medium-size company has grown sales and EPS at 11.3% and 10.7% per year, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’15 and EPS dip in ’16.

Over the past decade, PTPM leads peer and industry averages while trending up from 11.4% (’14) to 19.3% (’23) with a last-5-year mean of 15.4%. ROE leads peer and industry averages while ranging from 6.9% in ’21 to 10.1% in ’23 with a last-5-year mean of 8.3%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.7%.

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

With regard to sales growth:

I am forecasting below the range at 10.0% per year.

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is ’23 EPS of $5.11/share rather than 2024 Q1 $5.54 (annualized)

My Forecast High P/E is 39.0. Over the past decade, high P/E ranges from 29.9 in ’15 to 107 in ’21 with a last-5-year mean of 76.4, last-10-year median of 46.5, and last-5-year-mean average P/E of 56.1. I am forecasting toward the lower end of the range [’15, ’16 (29.9), and ’17 (34.5) are lower].

My Forecast Low P/E is 29.0. 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 35.8 and the last-10-year median is 31.5. I am forecasting toward the lower end of the range [’15, ’14 (21.9), ’16 (26.8), and ’17 (28.4) are lower].

My Low Stock Price Forecast (LSPF) of $148.20 is default based on initial value given above. This is 24.6% less than the previous close and 0.9% 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/unless payment is reinstituted.

These inputs land NICE in the BUY zone with a U/D ratio of 2.9. Total Annualized Return (TAR) is 11.3%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 8.3%. 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 101 studies done in the past 90 days (my study and 35 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 12.0%, 50.0, and 35.7, respectively. I am lower across the board. Value Line projects a future average annual P/E of 23.0 that is much less than both MS (42.9) and me (34.0).

MS high / low EPS are $9.15 / $5.09 versus my $8.61 / $5.11 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $20.25 is much greater than both.

MS LSPF of $157.80 implies a Forecast Low P/E of 31.0 versus the above-stated 35.7. MS LSPF is 13.2% less than the default $5.09/share * 35.7 = $181.71, which results in more conservative zoning. MS LSPF is 6.5% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.3 and 2.9 per Zacks and my projected P/E: clearly overvalued by the latter. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.63.

Analyst estimates have climbed over the past seven months but so too has stock price leaving U/D relatively constant.

Study question for the day: why does Value Line have such highly discrepant [and offsetting] average annual P/E and EPS projections? I see this periodically in its analysis.

NICE is a BUY under $195/share. With my forecast high price ~$336, the BI TAR criterion will be satisfied ~$168.

Categories: BetterInvesting® | Comments (0) | Permalink

CMCSA Stock Study (5-22-24)

Posted by on June 24, 2024 at 06:50 | Last modified: May 22, 2024 11:36

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $39.21. Previous studies are here and here.

M* writes:

     > Comcast is made up of three parts. The core cable business owns
     > networks capable of providing television, internet access, and
     > phone services to 63 million US homes and businesses, or nearly
     > half of the country. About 55% of the locations in this territory
     > subscribe to at least one Comcast service. Comcast acquired
     > NBCUniversal from General Electric in 2011. NBCU owns several
     > cable networks, including CNBC, MSNBC, and USA, the NBC network,
     > the Peacock streaming platform, several local NBC affiliates,
     > Universal Studios, and several theme parks. Sky, acquired in 2018,
     > is the dominant television provider in the UK and has invested
     > heavily in proprietary content to build this position. Sky is
     > also the largest pay-television provider in Italy and has a
     > presence in Germany and Austria.

Over the last 10 years, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.0% and 10.0% per year, respectively (excluding upside EPS outlier in ’17 due to TCJA and downside outlier in ’22 due to goodwill impairment). Lines are mostly up, straight, and parallel except for sales/EPS decline in ’20.

Over the past decade, PTPM leads peer and industry averages despite decreasing from 18.1% (’14) to 16.8% (’23) with a last-5-year mean (excluding ’22) of 15.6%. ROE leads peer and industry averages since ’18 with a last-5-year mean (excluding ’22) of 15.2%. Debt-to-Capital is less than peer and industry averages despite increasing from 47.8% (’14) to 54.0% (’23) with a last-5-year mean of 50.3%.

Although Interest Coverage and Quick Ratio are only 6.0 and 0.5, respectively per M*, Value Line gives an “A+” rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation, assigns a “Wide” economic moat, and writes:

     > We believe the firm’s balance sheet is sound and shareholder
     > returns are generally appropriate. The firm instituted a
     > dividend in 2008 as the business started to generate strong
     > cash flows and has increased its payout tenfold since then,
     > or 15% annually on average.

With regard to sales growth:

I am forecasting flat growth below the long-term estimate.

With regard to EPS growth:

My 7.0% forecast is below the long-term estimate range (mean of five: 9.6%). Initial value is 2023 EPS of $3.71/share.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 12.8 in ’23 to 23.0 in ’20 (8.9 in ’17 and 43.1 in ’22 excluded as outliers) with a last-5-year mean of 18.2. The last-5-year-mean average P/E is 15.4. I am forecasting toward the bottom of the range (only ’23 is lower).

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 9.3 in ’23 to 15.4 in ’15 (7.2 in ’17 and 23.5 in ’22 excluded as outliers) with a last-5-year mean of 12.6. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $29.70 is default based on initial value given above. This is 24.3% less than the previous closing price and 18.7% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 28.1% in ’14 (excluding 13.3% outlier in ’17) and the last-5-year mean is 33.5% (excluding the upside outlier of 89.3% in ’22). I am forecasting below the range at 28.0%.

These inputs land CMCSA in the BUY zone with a U/D ratio of 4.1. Total Annualized Return (TAR) is 16.6%.

PAR (using Forecast Average—not High—P/E) is decent for a mega-size company at 11.3%. 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 136 studies done in the past 90 days (my study and 50 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 3.8%, 7.6%, 17.3, 11.1, and 38.8%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 15.0 that is greater than MS (14.2) and greater than mine (11.5).

MS high / low EPS are $5.38/ $3.61 versus my $5.20 / $3.71 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $5.70 is greater than both.

MS LSPF of $32.40 implies a Forecast Low P/E of 9.0 versus the above-stated 11.1. MS LSPF is 19.1% less than the default $3.61/share * 11.1 = $40.07 (INVALID on today’s date), which results in more conservative zoning. MS LSPF is still 9.1% greater than mine.

TAR (over 15.0% preferred) is less than MS 20.1%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.0 and 1.4 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.68.

CMCSA is a BUY under $41/share and the BetterInvesting TAR criterion is satisfied right now.

Categories: BetterInvesting® | Comments (0) | Permalink

G Stock Study (5-21-24)

Posted by on June 20, 2024 at 06:55 | Last modified: May 21, 2024 11:27

I recently did a stock study on Genpact Ltd. (G) with a closing price of $37.18. Previous studies are here and 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 last 10 years, this medium-size company has grown sales and EPS at annualized rates of 8.5% and 12.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’22.

Over the past decade, PTPM leads peer and industry averages while ranging from 10.8% in ’20 to 13.5% in ’23 with a last-5-year mean of 11.6%. ROE slightly trails the industry while beating peer averages by ranging from 14.9% (’14) to 30.8% (’23) with a last-5-year mean of 20.8%. Debt-to-Capital is lower than industry averages and higher than peers in climbing from 38.2% (’14) to 40.1% (’23) with a last-5-year mean of 48.7%.

Quick Ratio is 1.4 and Interest Coverage is 10.1. Value Line rates the company “A” for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 0.9x on a TTM basis.”

With regard to sales growth:

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

My 3.0% forecast is below the long-term-estimate range (mean of four: 6.9%). The initial value is ’23 EPS of $3.41/share rather than 2024 Q1 EPS of $3.50 (annualized). While the forecast may seem low, initial value is 81.4% greater than the previous year. I typically expect some mean reversion when I see such dramatic changes.

My Forecast High P/E is 14.0. Over the past decade, high P/E increases from 22.8 (’14) to 28.7 (’22) before tanking to 14.2 in ’23. The last-5-year mean is 25.7 and the last-5-year-mean average P/E is 21.0. I am forecasting below the range.

My Forecast Low P/E is 8.0. Over the past decade, low P/E increases from 16.1 (’14) to 20.0 (’21/’22; temporary COVID disruption in ’20 of 12.4) before tanking to 8.6 in ’23 with a last-5-year mean of 16.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $27.30 is default based on the initial value. This is 20.5% less than the previous closing price and 7.1% less than the 52-week low.

Since dividend payments begin in 2017, the lowest Payout Ratio (PR) is 16.1% in ’23 with a last-5-year mean of 22.4%. I am forecasting below the range at 16.0%.

These inputs land G in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.1%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 6.3%. 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 87 studies done in the past 90 days (my study and 20 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 6.0%, 6.7%, 20.4, 13.3, and 22.4%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 16.0 that is less than MS (16.9) and much greater than mine (11.0).

MS high / low EPS are $4.33 / $2.96 versus my $3.95 / $3.41 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.10 is in the middle.

MS LSPF of $28.10 implies a Forecast Low P/E of 9.5 versus the above-stated 13.3. MS LSPF is 28.6% less than the default $2.96/share * 13.3 = $39.37: quite a big discrepancy! MS LSPF is still 2.9% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 22.5% (another big discrepancy). Especially given my conservative judgments, I believe MOS to be robust in the current study.

Big discrepancies are also seen with regard to valuation. PEG is 1.4 and 3.2 per Zacks and my projected P/E: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely cheap at 0.47.

The P/E compression in 2023 makes for a very interesting stock study. EPS spikes but stock price does not follow. The difference between P/E remaining at ’23 levels or returning to historical levels is the TAR difference between MS and the current study: all highly discrepant.

G is a BUY under $34/share. With a forecast high price ~$55, my personal TAR criterion is satisfied ~$27.50.

In reading the Apr 2024 BI Magazine, I realize “my personal TAR criterion” stems from BI. As discussed in Daniel Boyle’s “Repair Shop” article:

     > BetterInvesting teaches us to focus on companies that can consistently grow their
     > earnings at least 15% per year so that if valuation, as measured by the P/E ratio,
     > doesn’t change the stock is expected to double over five years.

Categories: BetterInvesting® | Comments (0) | Permalink

UI Stock Study (5-20-24)

Posted by on June 18, 2024 at 07:15 | Last modified: May 20, 2024 10:35

I recently did a stock study on Ubiquiti Inc. (UI) with a closing price of $146.37. The previous study is here.

M* writes:

     > Ubiquiti Inc is a wireless and wireline network equipment provider
     > for small Internet service providers and small- and midsize-
     > business integrators. Its product is based on two primary categories
     > namely Service Provider Technology and Enterprise Technology. The
     > company generates maximum revenue from Enterprise Technology.
     > Geographically, it derives a majority of revenue from North America
     > and also has a presence in Europe, the Middle East and Africa; Asia
     > Pacific and South America.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 16.2% and 20.3%, respectively (FY ends 6/30). Lines are mostly up and parallel with a sales decline in ’22 and EPS declines in ’15, ’18, and ’22.

Over the past decade, PTPM leads industry and peer averages while ranging from 24.5% in ’15 to 38.3% in ’21 with a last-5-year mean of 31.5%. ROE is above peer and industry averages until ’20 when a stockholders’ deficit appears; the last-5-year mean is -257%. Debt-to-Capital is mostly less than peer and industry averages until ’18 and ’19, respectively, when it soars to triple-digit percentages for a last-5-year mean of 131%.

Interest Coverage is 6.5, Current Ratio is 3.9, and Quick Ratio is 1.1. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting toward the lower end of the range at 5.0% per year.

With regard to EPS growth:

I am forecasting below both long-term estimates (mean 7.8%) at 5.0% per year. I will use ’23 EPS of $6.74/share as the initial value rather than 2024 Q3 EPS of $5.78 (annualized).

My Forecast High P/E is 26.0. Over the past decade, high P/E trends up from 28.9 (’14) to 52.0 (’23) with a last-5-year mean of 44.5 and last-5-year-mean average P/E of 33.4. I am forecasting toward the bottom of the range [only ’16 (16.6) and ’17 (20.9) are lower].

My Forecast Low P/E is 16.0. Over the past decade, low P/E trends up from 8.7 (’14) to 23.8 (’23) with a last-5-year mean of 22.2. I am forecasting under the last-10-year median of 17.6.

My Low Stock Price Forecast (LSPF) of $107.80 is default based on $6.74/share. This is 24.4% less than the previous close and 4.7% greater than the 52-week low.

The last-5-year mean Payout Ratio (PR) is 26.8%. I am forecasting below the range at 16.0%.

These inputs land UI in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 9.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.1%. If a healthy margin of safety (MOS) anchors the 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 4 studies done in the past 90 days (my study and 3 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 6.3%, 8.5%, 29.0, 19.1, and 24.3%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 27.0 that is greater than MS (24.1) and mine (21.0).

MS high / low EPS are $9.46 / $6.15 versus my $8.60 / $6.74 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $9.00 is in the middle.

MS LSPF of $97.10 implies a Forecast Low P/E of 15.8 versus the above-stated 19.1. MS LSPF is 17.3% less than the default $6.15/share * 19.1 = $117.47, which results in more conservative zoning. MS LSPF is also 9.9% less than mine.

TAR (over 15.0% preferred) is much less than MS 19.1%. Even though my LSPF is relatively high (I often decrement Forecast Low P/E to coincide with the 52-week low), I believe MOS to be robust in the current study. Analyst estimates are as scant as the MS sample size, but I am more conservative on every input.

With regard to valuation, PEG is 4.8 per my projected P/E: substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.76.

I am not a fan of the negative ROE. It appears to be fueled by PR (starting 2019) and stock buybacks that have decreased share count by about 20% over the last several years. Ideally these activities would be funded via cash flow from operations. Taking on debt is a negative that, in my opinion, can offset a resultant positive. Stockholders’ deficit grows further in 2023. Although CFRA does not seem concerned about this (calling the balance sheet “solid”) and Value Line doesn’t mention it, I would like to a path back to equity in order to feel more comfortable.

UI is a BUY under $136/share. With a forecast high price ~$224, my personal TAR criterion would be met ~$112. I am more likely to hold out for the latter given the stockholders’ deficit and debt load.

Categories: BetterInvesting® | Comments (0) | Permalink

PAYC Stock Study (5-20-24)

Posted by on June 14, 2024 at 06:40 | Last modified: May 18, 2024 15:13

I recently did a stock study on Paycom Software Inc. (PAYC) with a closing price of $182.28.

M* writes:

     > Paycom is a fast-growing provider of payroll and human capital
     > management software primarily targeting clients with 50-10,000
     > employees in the United States. Paycom was established in 1998
     > and services about 19,500 clients as of 2023, based on parent
     > company grouping. Alongside its core payroll software, Paycom
     > offers various HCM add-on modules, including time and
     > attendance, talent management, and benefits administration.

Since 2016, this medium-size company has grown sales and earnings at annualized rates of 25.7% and 30.9%, respectively (’14 and ’15 excluded due to small bases that would otherwise result in even higher growth rates). Lines are up, straight, and narrowing except for an EPS decline in ’20 (FY ends Dec 31).

Over the last decade, PTPM leads industry and peer averages while generally trending higher from 6.4% (’14) to 27.9% (’23) with a last-5-year mean of 26.6%. ROE also leads peer and industry averages while ranging from 8.6% in ’14 to 41.5% in ’17 with a last-5-year mean of 26.7%. Having no long-term debt, Debt-to-Capital is much lower than peer and industry averages: last-5-year mean is 3.2%.

Current Ratio is 1.13 but Quick Ratio is only 0.13. M* gives an “Exemplary” rating for Capital Allocation and assigns a “Narrow” economic moat to the company. Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 9.0% per year.

With regard to EPS growth:

My 9.0% forecast is below the long-term-estimate range (mean of five: 11.3%). I will use ’23 EPS of $5.88/share as the initial value rather than 2024 Q1 EPS of $8.21 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 63.6 in ’23 to 268 in ’14. Four of 10 years have triple-digit high P/Es. Excluding those, the last-5-year mean is 80.1 and the last-5-year-mean average P/E is 67.1. I am way below the range and at the top of my comfort zone.

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 24.9 in ’23 (30.3 in ’16 is the second-lowest) to 112 in ’14 with a last-5-year mean of 54.2. I am below the range.

My Low Stock Price Forecast (LSPF) of $141.10 is default based on $5.88/share initial value. This is 22.6% less than the previous close and 3.5% less than the 52-week low.

The stock pays a dividend for the first time in 2023 with a Payout Ratio (PR) of 19.1%. I will forecast zero for now.

These inputs land PAYC in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 11.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.9%. 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 done in the past 90 days (my study and 42 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 11.9%, 12.5%, 40.0, 25.0, and 15.2%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 30.0 that is less than MS (32.5) and greater than mine (29.5).

MS high / low EPS are $11.42 / $5.90 versus my $9.05 / $5.88 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $13.45 is greater than both.

MS LSPF of $146.40 implies a Forecast Low P/E of 24.8 versus the above-stated 25.0. MS LSPF is only 0.8% less than the default $5.90/share * 25.0 = $147.50. MS LSPF is 3.8% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.3 per Zacks and my projected P/E: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is ridiculously cheap at 0.33.

Lots of things to like about this stock study: good analyst coverage, no long-term debt, outstanding ROE, “Exemplary” Capital Allocation and 4-star rating per M*, dirt-cheap relative value, “Strong Buy” per CFRA, and “wide recovery potential at a deeply discounted valuation” per Value Line.

PAYC is a BUY under $180/share. With a forecast high price ~$316, my personal TAR criterion would be met ~$158 (0% PR forecast decreases TAR by 0.5%).

Categories: BetterInvesting® | Comments (0) | Permalink

INFY Stock Study (5-17-24)

Posted by on June 12, 2024 at 07:03 | Last modified: May 17, 2024 09:42

I recently did a stock study on Infosys Ltd ADR (INFY) with a closing price of $17.24.

M* writes:

     > Infosys is a leading global IT services provider, with nearly 250,000
     > employees. Based in Bangalore, the Indian IT services firm leverages
     > its offshore outsourcing model to derive 60% of its revenue from North
     > America. The company offers traditional IT services offerings:
     > consulting, managed services and cloud infrastructure services,
     > and business process outsourcing as a service.

Over the last 10 years, this large-size company has grown sales and earnings at annualized rates of 9.1% and 6.6%, respectively. Lines are mostly up, straight, and parallel except for an EPS dip in ’18 (FY ends Mar 31; any FY references to BI website or Value Line are incremented by one). EPS R^2 is 0.94.

Over the past decade, PTPM leads industry and peer averages despite trending down from 32.3% (’15) to 23.4% (’24) with a last-5-year mean of 24.3%. ROE leads industry averages but slightly trails peers despite increasing from 24.2% (’15) to 32.7% (’24) with a last-5-year mean of 30.5%. Debt-to-Capital is much lower than peer and industry averages since the company has no long term debt (last-5-year mean 7.7%).

Quick Ratio is 1.7. Value Line gives an A+ rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation and assigns a “Narrow” economic moat to the company.

With regard to sales growth:

I am forecasting below the range at 2.0% per year.

With regard to EPS growth:

My 8.0% forecast is below the long-term-estimate range (mean of five: 10.8%). Initial value is ’24 EPS of $0.76/share.

My Forecast High P/E is 21.0. Over the past decade, high P/E increases from 21.2 (’15) to 27.3 (’24) with a last-5-year mean of 30.7 and a last-5-year-mean average P/E of 24.5. I am near the bottom of the range [only ’18 (17.0), which appears to be a (potentially TCJA) outlier, is lower].

My Forecast Low P/E is 14.0. Over the past decade, low P/E ranges from 12.2 in ’21 to 24.6 in ’22 with a last-5-year mean of 18.3. I am forecasting just below the 7-year median (14.2) from ’15-’21 (’22-’24 range is 19.4 – 24.6).

My Low Stock Price Forecast (LSPF) is $12.00. The default value ($10.60) seems unreasonably low as a 38.5% discount to previous close. $12.00 is a 30.4% discount and 20.0% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 33.4% in ’15 and the last-5-year mean is 53.2%. I am forecasting below the range at 33.0%.

These inputs land INFY in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) of 4.5% 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 only 56 studies done in the past 90 days (my study and 12 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.7%, 9.0%, 26.0, 16.1, and 53.6%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 22.0 that is higher than MS (21.1) and higher than mine (17.5).

MS high / low EPS are $1.14 / $0.74 versus my $1.12 / $0.76 (per share). Range midpoint is identical. Value Line’s high EPS of $1.25 is higher than both.

MS LSPF of $13.60 implies a Forecast Low P/E of 18.4 versus the above-stated 16.1. MS LSPF is 14.2% greater than the default $0.74/share * 16.1 = $11.91, which results in more aggressive zoning. MS LSPF is also 13.3% greater than mine.

TAR (over 15.0% preferred) is less than MS 13.6%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.3 and 2.6 per Zacks and my projected P/E: both somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 0.93.

I think the pivotal detail for this stock study is whether future P/E will remain elevated like the last three years or return to the range of ’15-’21. High P/E spikes in ’20 and both high and low P/E are elevated by ’21. Both turn lower in ’22 and ’23 to create disparate ranges between the first seven years and last three.

INFY is a BUY under $14.90/share. With a forecast high price of $23.60, my personal TAR criterion will be met at $13.30 (perhaps a few cents higher as forecasting PR below the range rather than at the 5-year median trims TAR by 1.0%).

Categories: BetterInvesting® | Comments (0) | Permalink

DRI Stock Study (5-16-24)

Posted by on June 10, 2024 at 07:18 | Last modified: May 16, 2024 10:53

I recently did a stock study on Darden Restaurants Inc. (DRI) with a closing price of $151.78.

M* writes:

     > Darden Restaurants is the largest restaurant operator in the U.S.
     > full-service space, with consolidated revenue of $10.5 billion in
     > fiscal 2023 resulting in 3%-4% full-service market share (per NRA data
     > and our calculations). The company maintains a portfolio of 10 restaurant
     > brands: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen,
     > Ruth’s Chris, Yard House, The Capital Grille, Seasons 52, Eddie V’s,
     > Bahama Breeze, and The Capital Burger. Darden generates revenue almost
     > exclusively from company-owned restaurants, though a small network of
     > franchised restaurants and consumer-packaged goods sales through the
     > traditional grocery channel contribute modestly. As of the end of its
     > fiscal 2023, the company operated 1,914 restaurants in the U.S.

Over the last 10 years excluding 2019 (actually 2020 for COVID-19; FY ends May 31 and I must increment any BI-referenced year by one), this large-size company has grown sales and earnings at annualized rates of 4.7% and 20.5%, respectively. Lines are mostly up, straight, and parallel except for sales/EPS decline in ’21.

Over the past decade, PTPM trails peer and industry averages despite increasing from 2.8% (’14) to 10.7% (’23) with a last-5-year mean (’20 excluded for entire paragraph) of 9.8%. ROE leads peer and industry averages while increasing from 8.6% (’14) to 47.4% (’23) with a last-5-year mean of 35.6%. Debt-to-Capital is lower than peer and industry averages despite ranging from 18.4% in ’16 to 69.0% in ’22 with a last-5-year mean of 57.6%.

Quick Ratio is low at 0.14 but Interest Coverage (per Value Line) is 11.7. M* gives a “Standard” rating for Capital Allocation and Value Line gives a B+ rating for Financial Strength. M* assigns a “Narrow” economic moat to the company.

With regard to sales growth:

I am forecasting below the range at 4.0% per year.

With regard to EPS growth:

My 7.0% forecast is at the bottom of the long-term-estimate range (mean of five: 9.8%). I will use ’23 EPS of $8.00/share as initial value rather than 2024 Q3 EPS of $8.54 (annualized).

My Forecast High P/E is 20.0. Over the past decade (excluding ’20), high P/E falls from 35.8 (’14) to 20.5 (’23) with a last-5-year mean of 23.9 and a last-5-year-mean average P/E of 19.3. I am below the 10-year range.

My Forecast Low P/E is 14.0. Over the past decade (excluding ’20), low P/E falls from 29.1 (’14) to 13.9 (’23) with a last-5-year mean of 14.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $112.00 is default based on $8.00/share initial value and near the 2022 low price: 26.2% less than previous close and 16.0% less than 52-week low.

The lowest Payout Ratio (PR) over the past decade is 32.3% in ’21 and the last-5-year mean is 51.2%. I am forecasting below the range at 32.0%.

These inputs land DRI in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 6.6%. 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 10 studies done in the past 90 days (my study and 4 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 6.0%, 9.6%, 21.7, 14.5, and 51.2%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 18.0 that is lower than MS (18.1) and higher than mine (17.0).

MS high / low EPS are $13.44 / $8.44 versus my $11.22 / $8.00 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s high EPS of $13.65 is greater than both.

MS LSPF of $116.50 implies a Forecast Low P/E of 13.8 versus the above-stated 14.5. MS LSPF is 4.8% less than the default $8.44/share * 14.5 = $122.38, which results in more conservative zoning. MS LSPF is 4.0% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.3%. Despite the small MS sample size, I try to underestimate every input relative to analyst estimates and/or historical data. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.7 and 2.4 per Zacks and my projected P/E: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 0.92.

DRI is a BUY under $140/share. With a forecast high price ~$224, my personal TAR criterion would be met ~$112 (plus a few bucks, perhaps, as forecasting PR at bottom of the range rather than at last-5-year mean lowers TAR by 1.0%).

Categories: BetterInvesting® | Comments (0) | Permalink

DAR Stock Study (5-15-24)

Posted by on June 6, 2024 at 06:58 | Last modified: May 15, 2024 10:47

I recently did a stock study on Darling Ingredients Inc. (DAR) with a closing price of $44.78. The previous study is here.

M* writes:

     > Darling Ingredients Inc develops and manufactures sustainable ingredients
     > for customers in the pharmaceutical, food, pet food, fuel, and fertilizer
     > industries. It collects and transforms all aspects of animal by-product
     > streams into ingredients, including gelatin, fats, proteins, pet food
     > ingredients, fertilizers. Also, the company recovers and converts used
     > cooking oil and bakery remnants into feed and fuel ingredients. Darling
     > has three primary business segments: feed ingredients (the majority
     > of revenue), food ingredients, and fuel ingredients. It provides
     > grease trap services for food businesses and sells various equipment
     > for collecting and delivering cooking oil. The company derives
     > the majority of its revenue from customers in North America.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 6.9% and 44.9% (fractional base for the latter). Lines are generally up and narrowing with YOY sales declines in ’15, ’18, and ’19 and EPS declines in ’16, ’18, ’20, and ’23 leaving visual inspection somewhat questionable (sales not consistently up and EPS appearing somewhat cyclical).

Over the past decade, PTPM trails peer and industry averages despite increasing from 2.1% (’14) to 10.6% (’23) with a last-5-year mean of 12.6%. ROE trails peer and industry averages despite increasing from 3.3% (’14) to 14.5% (’23) with a last-5-year mean of 15.6%. Debt-to-Capital is lower than peer and industry averages while ranging from 33.1% in ’21 to 52.4% in ’14 with a last-5-year mean of 41.8%.

Quick Ratio per M* is 0.8, and Interest Coverage is 5.8 per Value Line. The latter gives a B+ Financial Strength rating—down from B++ nine months ago.

With regard to sales growth:

I am forecasting near the bottom of the range at 1.0% per year.

With regard to EPS growth:

My 7.0% per year forecast is at the bottom of the long-term estimate range (mean of three: 9.2%). Initial value will be 2024 Q1 EPS of $3.34 (annualized) rather than ’23 EPS of $3.99/share

My Forecast High P/E is 16.0. Over the past decade, high P/E trends down from 54.9 (’14) to 17.9 (’23) with a last-5-year mean of 21.6 and a last-5-year-mean average P/E of 16.0. I am near the bottom of the range [only ’19 (15.2) is less].

My Forecast Low P/E is 10.0. Over the past decade, low P/E trends down from 41.9 (’14) to 9.8 (’23) with a last-5-year mean of 10.4. My forecast is near the bottom of the range [only ’20 (5.8) and ’23 are less].

My Low Stock Price Forecast (LSPF) of $33.40 is default based on $3.34/share initial value. This is 25.4% less than the previous closing price and 14.4% less than the 52-week low.

These inputs land DAR in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 10.9%.

PAR (using Forecast Average—not High—P/E) of 6.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 135 studies done in the past 90 days (my study and 33 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.6%, 7.0%, 17.8, and 10.4, respectively. I am lower on three of four. Value Line projects a future average annual P/E of 12.5 that is less than MS (14.1) and less than mine (13.0).

MS high / low EPS are $5.74 / $3.98 versus my $4.68 / $3.34 (per share). My high EPS is less due to a lower initial value (i.e. low EPS). Value Line’s high EPS of $6.00 is greater than both.

MS LSPF of $35.90 implies a Forecast Low P/E of 9.0 versus the above-stated 10.4. MS LSPF is 13.3% less than the default $3.98/share * 10.4 = $41.39, which results in more conservative zoning. MS LSPF is 7.5% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 17.4%. I believe MOS to be robust in the current study with the main contributor being use of most recent [depressed] quarterly EPS as initial value.

With regard to valuation, PEG is 1.8 per my projected P/E: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.84.

Stock is down 28.5% over the last nine months. With visual inspection mediocre and management metrics not overly impressive (lagging, downgraded, etc.), I’m personally not in any rush.

DAR is a BUY under $43/share. With a forecast high price of $75, my personal TAR criterion will be met around $37.50.

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