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WAL Stock Study (7-1-24)

Posted by on August 15, 2024 at 06:48 | Last modified: July 1, 2024 11:30

I recently did Western Alliance Bancorp (WAL) with a closing price of $62.82. Previous studies are here, 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. The company’s reportable segments are
     > Commercial segment includes provides commercial banking and treasury
     > management products and services to small and middle-market businesses,
     > specialized banking services to sophisticated commercial institutions and
     > investors within niche industries, as well as financial services to the
     > real estate industry. Consumer Related segment offers both commercial
     > banking services to enterprises in consumer-related sectors and consumer
     > banking services, such as residential mortgage banking. Corporate & Other.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 21.1% and 20.6%, respectively. Lines are mostly up, straight, and parallel except for ’23 declines in sales and total assets.

Over the past decade, PTPM leads peer and industry averages despite falling from 48.2% (’14) to 43.9% (’23) with a last-5-year mean of 53.9%. ROE leads peer and industry averages despite falling from 17.4% (’14) to 13.1% (’23) with a last-5-year mean of 17.8%. Debt-to-Capital is lower than peer and industry averages despite increasing from 30.1% (’14) to 57.2% (’23) with a last-5-year mean of 33.8%.

Value Line rates the company B+ for Financial Strength.

ROAA increases from 1.36% in ’13 to 1.69% in ’22 before falling to 1.36% and 1.02% in the last two years (each a subsequent 10-year low). ROAA is one of several metrics that fall in ’23 as a series of bank failures rock the industry.

With regard to sales growth:

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

With regard to EPS growth:

My forecast of 5.0% per year is below the long-term estimate range. Mean of four estimates is 7.7% but I am skeptical of data duplication (lighter analyst coverage than four data sources suggest) because three are exact matches. Initial value is 2023 EPS of $6.54 (down 32.6% YOY) rather than 2024 Q1 EPS of $6.86/share (annualized).

My Forecast High P/E is 10.0. Over the past decade, high P/E ranges from 11.9 in ’19 to 20.3 in ’16 with a last-5-year mean of 12.7 and a last-5-year-mean average P/E of 8.9. I am below the entire 10-year high P/E range.

My Forecast Low P/E is 5.0. Over the past decade, low P/E falls from 12.2 (’14) to 1.1 (’23) with a last-5-year mean of 5.1. I am forecasting toward the lower end of the range [only ’23 (outlier) and ’20 (4.1) are lower].

My Low Stock Price Forecast (LSPF) is $43.00. Default based on initial value given above seems unreasonably low (47.9% less than previous close). My LSPF (arbitrary) is 31.6% less than the previous low and 20.5% greater than 52-week low.

WAL commences dividend in 2019 with a last-5-year mean Payout Ratio (PR) of 16.2%. My 9.0% forecast is below the range.

These inputs land WAL in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) of 1.1% 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 75 studies done in the past 90 days (my study along with 38 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 13.4%, 11.9%, 11.4, 5.1, and 15.3%, respectively. I am lower across the board. Value Line projects a 2025 [versus 2028] average annual P/E of 6.7 that is less than MS (8.3) and myself (7.5).

MS high / low EPS are $12.09 / $6.86 versus my $8.35 / $6.54 (per share). My high EPS is less due to a lower growth rate. Value Line’s ACE high EPS ~$9.20 is in the middle.

MS LSPF of $35.00 implies a Forecast Low P/E of 5.1: a perfect match. MS LSPF is 18.6% less than mine resulting in more conservative zoning.

With regard to valuation, PEG is 1.2 and 1.7 per Zacks and my projected P/E, respectively: the latter slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly elevated at 1.02.

MOS is robust in the current study because my inputs are below MS and the respective analyst/historical ranges. As further evidence, MS TAR of 19.8% is much higher than mine.

Western Alliance has survived the 2023 industry turbulence and bounced back from fire sale stock valuations. Those [of us: full disclosure] who bought with “blood in the streets” may consider selling now that valuation has normalized. My hesitation is the forecast double-digit sales growth and my sub-trendline initial value. If the latter normalizes, then next year’s First Cut should make for a more interesting read.

Per U/D, WAL is a BUY under ~$53/share. The stock needs to fall under $42 to meet the BI TAR criterion given a forecast high price of $83.50.

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EXLS Stock Study (6-28-24)

Posted by on August 13, 2024 at 07:20 | Last modified: June 28, 2024 10:57

I recently studied ExlService Holdings, Inc. (EXLS) with a closing price of $31.11.

M* writes:

     > ExlService Holdings Inc. is a business process management company
     > that provides digital operations and analytical services to clients
     > driving enterprise-scale business transformation initiatives that
     > leverage company’s deep expertise in analytics, AI, ML and cloud.
     > The company offers business process outsourcing and automation
     > services, and data-driven insights to customers across multiple
     > industries. The company operates through four segments based on
     > the products and services offered and markets served: Insurance,
     > Healthcare, Emerging, Analytics. The vast majority of the company’s
     > revenue is earned in the United States, and more than half of its
     > revenue comes from Analytics segment.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 12.6% and 18.6%, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’20 and EPS dip in ’17.

Over the past decade, PTPM leads peer and industry averages while ranging from 6.8% in ’18 to 14.6% in ’23 with a last-5-year mean of 12.3%. ROE leads peer averages while lagging the industry despite increasing from 7.7% (’14) to 21.2% (’23) with a last-5-year mean of 16.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 10.9% (’14) to 23.4% (’23) with a last-5-year mean of 30.2%.

Per M*, Quick Ratio is 2.3 and Interest Coverage is 19.4. Value Line gives a B++ grade 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 11.0% per year forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is ’23 EPS of $1.10/share rather than 2024 Q1 $1.08 (annualized).

My Forecast High P/E is 30.0. Over the past decade, high P/E ranges from 30.6 in ’16 to 45.6 in ’17 with a last-5-year mean of 38.3 and a last-5-year-mean average P/E of 30.5. I am forecasting below the range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 15.7 in ’20 to 31.8 in ’17 with a last-5-year mean of 22.7. I am near the bottom of the range [only ’20 and ’15 (18.4) are less].

My Low Stock Price Forecast (LSPF) of $22.00 is default based on initial value given above: 29.3% less than the previous close and 12.7% less than the 52-week low.

These inputs land EXLS in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 12.3%.

PAR (using Forecast Average—not High—P/E) of 8.3% 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 TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 266 studies done in the past 90 days (my study along with 51 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.9%, 12.7%, 32.0, and 22.4, respectively. I am lower across the board. Value Line projects a 2025 [versus 2028] average annual P/E of 19.9 that is less than MS (27.2) and myself (25.0).

MS high / low EPS are $1.98 / $1.08 versus my $1.85 / $1.10 (per share). My high EPS is less due to a lower growth rate. Value Line’s ACE high EPS of $2.18 exceeds both.

MS LSPF of $23.80 implies a Forecast Low P/E of 22.0: less than the above-stated 22.4. MS LSPF is 1.6% less than the default $1.08/share * 22.4 = $24.19 resulting in [slightly] more conservative zoning. MS LSPF is 8.2% higher than mine, though.

With regard to valuation, PEG is 1.3 and 2.4 per Zacks and my projected P/E, respectively: the latter overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.94.

MOS is robust in the current study because my inputs are below MS and the respective analyst/historical ranges. As further evidence, MS TAR of 16.2% is higher than mine.

This seems like a very organized stock study with plentiful analyst estimates (even without long-term from Value Line), a relatively tight range of those estimates, a relatively high Earnings Predictability score (75 from Value Line), and a straightedge visual inspection except for ’17 EPS.

Per U/D, EXLS is a BUY under ~$30/share. The stock needs to approach $27.50 in order to meet the BI TAR criterion given a forecast high price ~$55.

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PTLO Stock Study (6-27-24)

Posted by on August 12, 2024 at 06:40 | Last modified: June 27, 2024 09:21

I recently studied Portillo’s Inc. (PTLO) with a closing price of $9.95.

M* writes:

     > Portillos Inc serves the Chicago street food industry through
     > high-energy and multichannel restaurants designed to ignite
     > the senses and create memorable dining experiences. It owns
     > and operates fast-casual restaurants in the United States,
     > along with two food production commissaries in Illinois.
     > Its menu includes hot dogs, beef and sausage sandwiches,
     > sandwiches and ribs, salads, burgers, chicken, Barnelli’s
     > pasta, sides and soup, and desserts and shakes.

In a nod to Manifest Investing, “Portillo’s is not a sponsor of this program but they probably should be.”

Since 2019, the small-size company has grown sales and EPS at annualized rates of 10.0% and 451%, respectively. It has been profitable since ’22 and lines are up, straight, and parallel since then. More data is needed to evaluate visual inspection and for that reason, any potential stock investment should be considered non-core with a smaller position size.

PTPM trails peer and industry averages while ranging from -3.2% in ’21 to 4.1% in ’23 with a last-5-year mean of 1.6%. ROE averages 0.3% over the last three years and appears to trail peer and industry averages. Debt-to-Capital is about equal to peers and less than the industry in falling from 100% (’19) to 63.1% (’23) with a last-5-year mean of 79.1%.

Current and Quick Ratio are 0.4 and 0.2, respectively, per M*. Interest Coverage is 2.3. While these numbers could stand improvement, Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

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

With regard to EPS growth:

My 6.0% per year forecast is at the bottom of the long-term-estimate range (mean of four: 12.9%). Initial value is ’23 EPS of $0.32/share rather than 2024 Q1 $0.40 (annualized).

My Forecast High P/E is 35.0. High P/E is NMF, 162, and 76.3 for ’21, ’22, and ’23, respectively: not much to go on. The last-5-year-mean average P/E is 85.2. I am forecasting at the top of my comfort zone.

My Forecast Low P/E is 24.0. Low P/E is NMF, 59.3, and 43.4 for ’21, ’22, and ’23, respectively: also not much to go on. I am forecasting (arbitrarily) below the range.

My Low Stock Price Forecast (LSPF) of $7.70 is default based on initial value given above. This is 22.6% less than the previous close and 19.8% less than the 52-week low.

These inputs land PTLO in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 8.6%.

PAR (using Forecast Average—not High—P/E) of 5.0% 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 5 studies done in the past 90 days (my study and 3 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 10.9%, 40.0, and 21.0, respectively. I am lower on all but the last (24.0). Value Line projects a 2025 average annual P/E of 24.3 that appears to be less than MS and mine (albeit 3 years apart).

MS high / low EPS are $0.67 / $0.40 versus my $0.43 / $0.32 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s ACE high EPS of $0.87/share soars above both.

MS LSPF of $8.40 matches the default value. This is 9.1% higher than mine, which results in more aggressive zoning.

With regard to valuation, PEG is 5.2 and 3.8 per Zacks and my projected P/E, respectively: both extremely overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is low at 0.3 but not very meaningful due to brief data history.

I believe MOS to be robust in the current study primarily because my inputs are at or below respective analyst/historical ranges. MS TAR 21.0% is much higher than mine, but the tiny MS sample size limits meaningful comparison.

The common tendency of IPOs to lose money often puts a damper on early Quality rankings. As such, Portillo’s should be reserved for speculators who want to build a non-core (i.e. smaller) position.

Per U/D, PTLO is a BUY under $9.50/share. The stock needs to approach $7.50 in order to meet the BI TAR criterion given a forecast high price of $15.

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NVDA Stock Study (6-26-24)

Posted by on August 9, 2024 at 06:39 | Last modified: June 26, 2024 14:01

I recently studied NVIDIA Corp. (NVDA) with a closing price of $126.09. The stock was priced at $131.67 when I last studied it on 10/5/22: apparently little changed except for the 10:1 stock split that took place 16 days ago! What have I been missing?

M* writes:

     > Nvidia is a leading developer of graphics processing units.
     > Traditionally, GPUs were used to enhance the experience on
     > computing platforms, most notably in gaming applications on
     > PCs. GPU use cases have since emerged as important
     > semiconductors used in artificial intelligence. Nvidia not
     > only offers AI GPUs, but also a software platform, Cuda,
     > used for AI model development and training. Nvidia is also
     > expanding its data center networking solutions, helping to
     > tie GPUs together to handle complex workloads.

Over the last 10 years (FY ends Jan 31; references to year at BI and Value Line incremented to align), this mega-size ( > $50B annual revenue) company has grown sales and EPS at annualized rates of 30.0% and 40.8%, respectively. Lines are generally up, straight, and parallel with a sales dip in ’20 and EPS dips in ’20 and ’23. 10-year EPS R^2 of 0.83 triggers an audit review, but I think it passes visual inspection.

Over the last decade, PTPM is about even with peers and leading industry averages while ranging from 14.8% in ’16 to 55.5% in ’24 with a last-5-year mean of 32.3%. ROE ranges from 1.3% in ’16 to 8.8% in ’23 with a last-5-year mean of 4.0%. The latter was 23.7% on my first study; this data series may need stock-split adjustment. Debt-to-Capital is lower than peer and industry averages while ranging from 17.5% in ’19 to 35.2% in ’23 with a last-5-year mean of 27.1%.

Quick Ratio is 2.8 and Interest Coverage is 192. M* also rates Capital Allocation as “Exemplary” and assigns the company a “Wide” economic moat. Value Line grades A+ for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 25.0% per year.

With regard to EPS growth:

My 28.0% per year forecast is below the long-term-estimate range (mean of five: 35.6%). Initial value is ’24 EPS of $1.19/share rather than 2025 Q1 EPS of $1.71 (annualized).

My Forecast High P/E is 40.0. Excluding 166 in ’23, high P/E has increased over the past decade from 19.0 (’15) to 53.2 (’24) with a last-5-year mean of 71.4 and a last-5-year-mean average P/E of 48.5. I am forecasting above my comfort zone [only ’15 and ’16 (31.4) are less].

My Forecast Low P/E is 17.0. Excluding 62.1 in ’23, low P/E over the past decade ranges from 9.7 in ’17 to 30.0 in ’22 with a last-5-year mean of 25.7. I am forecasting in the lower portion of the range [only ’17 and ’15 (13.7) are less].

My Low Stock Price Forecast (LSPF) is $86.00. Default based on initial value from above ($20.20) seems unreasonably low at 84.0% less than the previous close and 48.5% less than the 52-week low [the real question is how to forecast a stock that has gone parabolic?]. My LSPF is [arbitrarily] 31.8% less than the previous close and 94.1% higher than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 1.3% in ’24 to 37.0% in ’16. Being insignificant anyway, I am discounting the dividend to 0%.

These inputs land NVDA in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 5.4%.

PAR (using Forecast Average—not High—P/E) is unacceptable for any size company at -1.5%. 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 676 studies (my study and 198 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 PR are 30.0%, 27.9%, 61.7, 31.2, and 7.6%, respectively. I am lower on every input except the second (28.0%). Value Line’s projected average annual P/E of 32.5 is less than MS (46.5) and greater than mine (28.5).

MS high / low EPS are $19.12 / $4.00 versus my $4.10 / $1.19 (per share). These cannot really be compared because MS data are not all stock-split adjusted. Value Line’s high EPS of $5.00/share is greater than mine.

Also because MS data are not completely stock-split adjusted, LSPF cannot be compared.

Zoning and MS TAR [much greater than mine at 22.0% but also stock-split sensitive] aside, MOS in this study is robust. I cannot consider my LSPF conservative because even at > 30.0% below the previous close, overriding default always adds risk. Nevertheless, my EPS growth rate is below the range, my forecast P/E range is low, and my high EPS is low.

With regard to valuation, PEG is 1.3 and 2.0 per Zacks and my projected P/E, respectively: the latter a tad high. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very expensive at 1.5 (2023 P/E excluded as discussed above).

NVDA has [projected] growth like no company I have studied before. I don’t just want growth, though. I want GARP: growth at a reasonable price.

U/D has NVDA a BUY under $105/share. The stock needs to approach $82 in order to meet the BI TAR criterion given a forecast high price of $164.

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AMPH Stock Study (6-25-24)

Posted by on August 7, 2024 at 07:23 | Last modified: June 25, 2024 11:00

I recently studied Amphastar Pharmaceuticals Inc. (AMPH) with a closing price of $40.84.

M* writes:

     > Amphastar Pharmaceuticals Inc is a biopharmaceutical company
     > that focuses on developing, manufacturing, marketing, and selling
     > technically challenging generic and proprietary injectable,
     > inhalation, and intranasal products. Additionally, the company
     > sells insulin API products. The company’s finished products are
     > used in hospital or urgent care clinical settings and are
     > contracted and distributed through group purchasing organizations
     > and drug wholesalers. The company has two reportable segments
     > finished pharmaceutical products and API products. Geographically
     > the business presence of the firm is seen in the United States,
     > China and France of which the U.S. accounts for the majority of
     > the revenue from Canada, Mexico, Chile, and the United States.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 12.1% and 127%, respectively. The latter is misleading. GAAP losses are posted in ’14, ’15, and ’18 while big YOY EPS declines are seen in ’17 and ’20.

I am on the fence whether the company passes visual inspection. As a small company, perhaps it deserves some leeway for “growing pains.” Value Line, which excludes nonrecurrent gains/losses, is more encouraging in reporting positive EPS since ’16 and growing EPS since ’17. Lines are generally improving since ’14 albeit somewhat cyclical and sometimes negative. Only since ’21 are lines strictly up, straight, and parallel.

Over the past 10 years, PTPM leads peer averages but trails the industry while increasing from -8.6% (’14) to 26.6% (’23) with a last-5-year mean of 17.8%. ROE trails peer and industry averages despite climbing from -3.9% (’14) to 21.0% (’23) with a last-5-year mean of 12.7%. Debt-to-Capital is lower than peer and industry averages despite increasing from 13.4% (’14) to 19.0% (’21) and then to 49.4% (’23 after acquiring BAQSIMI from Eli Lilly) for a last-5-year mean of 22.8%.

Quick Ratio is 1.7 and Interest Coverage is 6.3. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 6.0% per year.

With regard to EPS growth:

My 10.0% per year forecast is below the long-term-estimate range (mean of four: 15.6%). Initial value is ’23 EPS of $2.60/share rather than 2024 Q1 EPS of $2.89 (annualized).

My Forecast High P/E is 18.0. Since 2016, high P/E falls from 98.9 (’16) to 26.0 (’23) (excluding NMF in ’18 and triple-digit values in ’17 and ’20) with a last-5-year mean of 24.2 and a last-5-year-mean average P/E of 18.8. I am below the range.

My Forecast Low P/E is 11.0. Since 2016, low P/E falls from 47.8 (’16) to 10.6 (’23) (excluding NMF in ’18 and triple-digit values in ’17 and ’20) with a last-5-year mean of 13.5. I am forecasting near bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $28.60 is default based on initial value given above. This is 30.0% less than the previous closing price and 25.5% less than the 52-week low.

These inputs land AMPH in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 13.1%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a small-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 62 studies (my study and nine 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 12.0%, 13.3%, 20.0, and 12.4, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.5 is less than MS (16.2) and less than mine (14.5).

MS high / low EPS are $5.29 / $2.77 versus my $4.19 / $2.60 (per share). My high EPS is less due to a lower growth rate. Value Line tops both at $6.00/share.

MS LSPF of $31.00 implies a Forecast Low P/E of 11.2: less than the above-stated 12.4. MS LSPF is 9.8% less than the default $2.77/share * 12.4 = $34.35 thereby resulting in more conservative zoning. MS LSPF is still 8.4% higher than mine.

With regard to valuation, PEG is 0.8 and 1.3 per Zacks and my projected P/E: fair and lower than I usually see. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.75 (triple-digit values excluded as discussed above).

MOS in this study is robust. TAR (over 15.0% preferred) is much less than the MS 20.6%. My forecast growth rates and P/E range are at or below analyst estimates.

In case visual inspection is deemed to fail, a smaller-than-core position size can allow for participation with decreased risk.

U/D has AMPH a BUY under $40/share. The stock needs to approach $37 in order to meet the BI TAR criterion given a forecast high price ~$75.

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RGLD Stock Study (6-24-24)

Posted by on August 6, 2024 at 07:07 | Last modified: June 25, 2024 09:48

I recently studied Royal Gold Inc. (RGLD) with a closing price of $124.85.

M* writes:

     > Royal Gold Inc enquires and manages precious metal royalties and
     > streams, with a focus on gold. The company operates by purchasing
     > a percentage of the metal produced from a mineral property for
     > an initial payment, without assuming responsibility of mining
     > operations. Similarly, precious metal streams are purchase
     > agreements with mine operators providing the right to purchase
     > all or a portion of one or more metals produced from a mine, in
     > exchange for an upfront deposit payment. Generally Royal Gold
     > does not conduct any work on the properties in which it holds
     > royalty and streaming assets. The company owns a portfolio of
     > producing, development, evaluation, and exploration royalties
     > and streams, and the majority of group revenue is generated
     > from Canada, Mexico, Chile, and the United States.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 10.7% and 20.8%, respectively [excluding for the entire study non-recurrent-loss years ’16 and ’18 (although Value Line does not report any exclusion for the latter nor do they report the $1.73/share GAAP loss seen on the BI website and CFRA report)]. Lines are mostly up and parallel with sales declines in ’19 and ’22 and EPS declines in ’19 and ’22.

Over the past decade, PTPM leads peer averages and matches the industry while increasing from 35.0% (’14) to 46.6% (’23) with a last-5-year mean of 42.1%. ROE leads peer and industry averages while increasing from 2.7% (’14) to 8.4% (’23) with a last-5-year mean of 8.6%. Debt-to-Capital is lower than peer and industry averages while falling from 11.7% (’14) to 7.8% (’23) with a last-5-year mean of 9.2%.

Quick Ratio is 2.3 and Interest Coverage is 11.5. Value Line gives a B++ grade for Financial Strength.

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 4.0% per year forecast is at the bottom of the long-term estimate range (mean of four: 18.0%). Initial value is ’23 EPS of $3.63/share rather than 2024 Q1 EPS of $3.39 (annualized).

My Forecast High P/E is 37.0. Over the past decade, high P/E falls from 80.1 (’14) to 40.7 (’23) with a last-5-year mean of 46.3 and a last-5-year-mean average P/E of 37.3. I am near the bottom of the range [only ’21 (32.1) is less].

My Forecast Low P/E is 24.0. Over the past decade, low P/E falls from 42.1 (’14) to 28.0 (’23) with a last-5-year mean of 28.3. I am forecasting near the bottom of the range [’20 (19.7), ’21 (21.6), and ’22 (23.3) are lower].

My Low Stock Price Forecast (LSPF) of $87.10 is default based on initial value given above. This is 30.2% less than the previous closing price and 13.3% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 25.7% in ’21 to 109% in ’15 with a last-5-year mean of 43.3%. I am forecasting below the range at 25.0%.

These inputs land RGLD in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 6.2%.

PAR (using Forecast Average—not High—P/E) is lower than I seek for a small-size company at 2.4%. 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 (seven outliers including mine 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 PR are 11.6%, 12.0%, 37.1, 26.0, and 43.3%. I am lower across the board. Value Line’s projected average annual P/E of 31.0 is lower than MS (31.6) and higher than mine (30.5).

MS high / low EPS are $6.40 / $3.38 versus my $4.42 / $3.63 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both at $7.20/share.

MS LSPF of $86.60 implies a Forecast Low P/E of 25.6: close to the above-stated 26.0. MS LSPF is 1.5% less than the default $3.38/share * 26.0 = $87.88 thereby resulting in more conservative zoning. MS LSPF is also 0.6% less than mine.

MOS in this study is solid. My TAR (over 15.0% preferred) is much less than the 16.2% from MS. Although this carries decreased impact due to the small MS sample size, I use a low growth rate to match YF’s extremely low estimate.

Since I like to forecast below the range, without the YF estimate my forecast EPS growth would be a whopping 11 percentage points higher. That would put the stock in the BUY zone with an U/D of 3.6 and TAR >15.0%. If YF remains unchanged next time while others are noticeably different, I may consider excluding it or at least splitting the difference.

With regard to valuation, PEG is 1.1 and 8.9 per Zacks and my projected P/E, respectively: discrepancy proportional to growth rates. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 0.99.

U/D has RGLD a BUY under $106/share. The stock needs to approach $82 in order to meet the BI TAR criterion given a forecast high price ~$163.

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RHI Stock Study (6-24-24)

Posted by on August 4, 2024 at 07:22 | Last modified: June 24, 2024 08:13

I recently studied Robert Half Inc. (RHI) with a closing price of $65.05. The previous study is here.

M* writes:

     > Founded in 1948, Robert Half provides temporary, permanent,
     > and outcome-based staffing for both in-person and remote
     > positions in the finance and accounting, technology, legal,
     > marketing, and administrative fields. Its subsidiary consulting
     > arm, Protiviti, specializes in technology, risk, auditing, and
     > compliance matters. The firm generates most of its sales inside
     > the U.S. and stands as one of the largest specialized firms in
     > the highly fragmented U.S. staffing industry. The firm
     > generates annual revenue of around $7 billion.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 3.8% and 9.2%. Lines are zigzag up and parallel with sales declines in ’20 and ’23 along with EPS declines in ’16, ’17, ’20, and ’23. The stock appears more cyclical than “up, straight, and parallel.” While it passed in Oct 2024, I’m not sure it passes visual inspection now.

Over the past decade, PTPM leads peer and industry averages while ranging from 8.3% in ’20 to 12.4% in ’21 and ’22 with a last-5-year mean of 10.5%. ROE trails peer and industry averages while ranging from 25.4% in ’17 to 45.1% in ’21 with a last-5-year mean of 36.1%. Debt-to-Capital is lower than peer and industry averages as the company has no long-term debt; the last-5-year mean is 16.4% (e.g. uncapitalized leases, rentals).

Quick Ratio is 1.2 but M* no longer has an analyst assigned. Value Line gives an A+ grade for Financial Strength.

With regard to sales growth:

I am giving the long-term estimate a major haircut to 1.0% per year due to the negative short-term projections.

With regard to EPS growth:

The YF estimate is a bit suspect being unchanged since my previous October study. I am keeping it, though, with my 2.0% annualized forecast toward the lower end of the long-term estimate range (mean of four: 4.5%). Initial value is ’23 EPS of $3.88/share rather than 2024 Q1 EPS of $3.34 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 17.7 in ’19 to 26.3 in ’14 with a last-5-year mean of 21.8 and a last-5-year-mean average P/E of 17.3. I am below the range.

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 10.8 in ’22 to 18.4 in ’17 with a last-5-year mean of 12.8. I am forecasting near the bottom of the range [only ’22 and ’21 (11.4) are lower].

My Low Stock Price Forecast (LSPF) of $46.60 is default based on initial value given above. This is 28.4% less than the previous closing price and 23.7% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 28.4% in ’21 to 50.4% in ’20 with a last-5-year mean of 37.7%. I am forecasting below the range at 28.0%.

These inputs land RHI in the HOLD zone with a U/D ratio of 0.4. Total Annualized Return (TAR) is 3.9%.

PAR (using Forecast Average—not High—P/E) is much lower than I seek for any size company at 1.0%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even that falls far short of the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 10 studies (mine 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 PR are 2.9%, 5.9%, 20.8, 12.5, and 36.2%. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is higher than MS (16.7) and higher than mine (14.5).

MS high / low EPS are $5.08 / $3.34 versus my $4.28 / $3.88 (per share). My high EPS is less due to a lower growth rate. Value Line projects $6.50/share: greatest high EPS of all.

MS LSPF of $53.00 implies a Forecast Low P/E of 15.9: higher than the above-stated 12.5. MS LSPF is 27.0% greater than the default $3.34/share * 12.5 = $41.75 thereby resulting in more aggressive zoning. MS LSPF is also 13.7% greater than mine.

MOS in this study is solid. My TAR (over 15.0% preferred) is much less than the 9.7% from MS. Although this carries decreased impact due to the small MS sample size, I use a very low growth rate, a conservative forecast P/E range, and a low initial value (down 35.7% YOY).

It’s the poor visual inspection mentioned near the top that really necessitates a healthy MOS. 5-year and 10-year EPS R^2 are 0.16 and 0.61: not very good for either.

With regard to valuation, PEG is 5.3 and 9.5 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 fair at 1.1.

U/D has RHI a Buy under $53/share. The stock needs to approach $36 in order to meet the BI TAR criterion given a forecast high price ~$73.

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NTES Stock Study (6-20-24)

Posted by on August 3, 2024 at 07:16 | Last modified: June 21, 2024 12:47

I recently did a stock study on NetEase Inc. ADR (NTES) with a closing price of $90.63.

M* writes:

     > NetEase, which started on an internet portal service in 1997, is a
     > leading online services provider in China. Its key services include
     > online/mobile games, cloud music, media, advertising, email, live
     > streaming, online education, and e-commerce. The company develops
     > and operates some of the China’s most popular PC client and mobile
     > games, and it partners with global leading game developers, such
     > as Blizzard Entertainment and Mojang (a Microsoft subsidiary).

Over the past 10 years, this large-size company has grown sales and earnings at annualized rates of 22.1% and 16.5%, respectively. Lines are mostly up, straight, and parallel except for sales decline in ’19 and EPS declines in ’17, ’18, and ’20.

Over the past decade, PTPM leads industry averages despite falling from 46.6% (’14) to 32.9% (’23) with a last-5-year mean of 26.1%. ROE leads industry averages while ranging from 13.4% in ’20 to 34.3% in ’16 with a last-5-year mean of 19.4%. Debt-to-Capital is below industry averages despite rising from 8.1% (’14) to 14.1% (’23) with a last-5-year mean of 19.2%.

Quick Ratio is 2.4 per M* and Interest Coverage is 43.2 per alphaspread.com. M* rates the company “Standard” for Capital Allocation, describes the balance sheet as “sound,” and writes:

     > Given the business’ cash position and the cash flow generation, we
     > believe that NetEase can issue a very large amount of debt to fund
     > any potential acquisitions.

Value Line has not issued a report on the company.

With regard to sales growth:

I am forecasting below the range at 5.0% per year.

My 3.0% per year forecast is toward the lower end of the range (mean of four: 7.0%). Initial value is ’23 EPS of $6.40/share rather than 2024 Q1 $6.52 (annualized).

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 18.3 in ’14 to 49.8 in ’18 with a last-5-year mean of 27.9 and a last-5-year-mean average P/E of 21.8. I am toward the lower end of the range [only ’14 and ’23 (18.6) are less].

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 9.8 in ’16 to 25.8 in ’18 with a last-5-year mean of 15.7. I am forecasting toward the lower end of the range [only ’16 and ’14 (10.7) are less].

My Low Stock Price Forecast (LSPF) of $70.40 is default based on initial value given above. This is 22.3% less than the previous close and 18.9% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 21.1% in ’21 to 43.7% in ’19 with a last-5-year mean of 32.6%. I am forecasting below the range at 21.0%.

These inputs land NTES in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 10.1%.

PAR (using Forecast Average—not High—P/E) is lower than I seek in a large-size company at 5.4%. 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 14 studies (my study and 3 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 PR are 7.9%, 5.9%, 22.3, 14.9, and 32.6%.

MS high / low EPS are $8.62 / $6.39 versus my $7.41 / $6.40 (per share). My high EPS is less due to a lower growth rate.

MS LSPF of $75.00 implies a Forecast Low P/E of 11.7: lower than the above-stated 14.9. MS LSPF is 21.2% less than the default $6.39/share * 14.9 = $95.21 (INVALID on today’s date) thereby resulting in more conservative zoning. MS LSPF is 6.5% higher than mine, though.

Despite the small MS sample size, MOS seems robust in this study. My TAR (over 15.0% preferred) is less than MS 15.9%. I am toward the lower end of historical P/E ranges and long-term EPS projections. Were it not for the head-scratching YF long-term forecast, the stock may look much more attractive.

With regard to valuation, PEG is 1.6 and 4.5 per Zacks and my projected P/E, respectively: the latter significantly overvalued in part because of my low growth rate. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very low at 0.64.

U/D has NTES a BUY under $88/share. The stock needs to approach $70 in order to meet the BI TAR criterion given a forecast high price ~$141.

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JBL Stock Study (6-19-24)

Posted by on August 2, 2024 at 06:05 | Last modified: June 19, 2024 07:51

I recently did a stock study on Jabil Inc. (JBL) with a closing price of $126.23.

M* writes:

     > Jabil Inc is a United States-based company engaged in providing
     > manufacturing services and solutions. It provides comprehensive electronics
     > design, production and product management services to companies in various
     > industries and end markets. It operates in two segments. The Electronics
     > Manufacturing Services (EMS) segment, which is the key revenue driver, is
     > focused on leveraging IT, supply chain design and engineering, technologies
     > largely centered on core electronics. The Diversified Manufacturing
     > Services (DMS) segment is focused on providing engineering solutions, with
     > an emphasis on material sciences, technologies, and healthcare.

Since 2015, this large-size company grows sales and earnings at annualized rates of 9.6% and 30.6% (including -$0.01 EPS in ’14 boosts the latter to 83.6%; ’21 EPS, down 80.7% YOY due to COVID, is excluded). Sales are mostly up and straight, but YOY EPS declines in ’16, ’17, ’18, and ’23 make visual inspection questionable (9-year R^2 = 0.62). FY ends Aug 31.

Over the past decade, PTPM trails peer and industry averages despite increasing from 0.5% (’14) to 3.6% (’23) with a last-5-year mean of 2.7%. ROE leads peer and industry averages (mostly due to last three years) while increasing from 0% (’14) to 28.9% (’23) with a last-5-year mean of 23.5%. Debt-to-Capital is above peer and industry averages while climbing from 42.9% (’14) to 53.1% (’23) with a last-5-year mean of 58.5%.

Quick Ratio is 0.6 and Interest Coverage is 11.0. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

I am forecasting flat sales growth: less than the long-term estimate given near-term projections of contraction.

With regard to EPS growth:

My 9.0% per year forecast is below the long-term estimate range (mean of four: 11.7%). Initial value is ’23 EPS of $6.02/share (down 12.8% YOY) rather than 2024 Q2 $11.65 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 10.5 in ’22 to 64.8 in ’18 (’17 and ’18 much higher due to depressed earnings; I am excluding 126 in ’20) for a last-5-year mean of 15.4 and a last-5-year-mean average P/E of 12.0 (also excluding 50.4 low P/E in ’20). I am forecasting toward the lower end of the range [’22 and ’23 (13.8) are less].

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 6.6 in ’21 to 48.4 in ’18 (’17 and ’18 much higher due to depressed earnings; I am excluding 50.4 in ’20) with a last-5-year mean of 8.7. I am just below the 5-year median of 8.2.

My Low Stock Price Forecast (LSPF) is $88.00. Default based on initial value is unreasonably low at 61.8% less than the previous close. My forecast is 30.3% less than the previous close and 12.2% less than the 52-week low.

Over the past decade, the lowest (highest) Payout Ratio (PR) is 4.6% (91.4%) in ’22 (’20). I am forecasting just below the range at 4.0%.

These inputs land JBL in the HOLD zone with an U/D ratio of 0.4. Total Annualized Return (TAR) is 2.5%.

PAR (using Forecast Average—not High—P/E) is unacceptable for any size company at -2.7%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even that falls far short of the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 13 studies (my study and 5 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 PR are 4.0%, 7.9%, 17.0, 8.7, and 24.6%. I am lower on all except for the second (9.0%). Value Line’s projected average annual P/E of 16.0 is higher than MS (12.9) and higher than mine (11.5).

MS high / low EPS are $12.69 / $6.02 versus my $9.26/ $6.02 (per share). My high EPS is less due to a lower initial value ($6.02 is median while mean is $8.43; large discrepancies are more likely with low sample sizes). Value Line projects $16.50/share for high EPS, which soars above the others.

MS LSPF of $76.10 implies a Forecast Low P/E of 12.6: higher than the above-stated 8.7. MS LSPF is 45.3% greater (large discrepancy suggests others also used a manual override to higher values) than default $6.02/share * 8.7 = $52.37 resulting in more aggressive zoning. MS LSPF is 13.5% less than mine, however.

I believe MOS in this study is moderate. TAR (over 15.0% preferred) much less than MS 13.9% gets less emphasis due to a small sample size. My forecast EPS growth rate ends up higher than that small sample. Furthermore, I use a median Forecast Low P/E then still do a LSPF override.

With regard to valuation, PEG is 1.5 and 1.1 per Zacks and my projected P/E, respectively: relatively close and reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 0.9.

I am admittedly surprised by the limited current investment potential for JBL. I cannot overlook the stock’s 12-month climb of 33% (per Value Line), though, which will usually put BUY in the rearview mirror. EPS inconsistency led to ambivalence with one choice dramatically impacting results. Also pertaining to the latter was exclusion of [historical P/E] values that changes 5-year-mean high P/E in addition to 5-year-mean average P/E.

Moral of the story (once again): seek out high-quality stocks that definitively pass visual inspection. This one does not.

U/D has JBL a BUY under $100/share. The stock needs to approach $70 in order to meet the BI TAR criterion given a forecast high price ~$139.

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