OPCH Stock Study (8-26-24)

Posted by Mark on October 18, 2024 at 06:11 | Last modified: August 26, 2024 16:35

I recently did a stock study on Option Care Health, Inc. (OPCH) with a closing price of $31.83.

M* writes:

     > Option Care Health Inc is the provider of home and alternate-
     > site infusion services. It provides treatment for bleeding
     > disorders, neurological disorders, heart failure, anti-
     > infectives, and chronic inflammatory disorders among others.

Since 2014 and 2021 (first year of profitability), this medium-size company has grown sales and earnings at annualized rates of 11.9% and 23.4%, respectively. Lines are somewhat up, straight, and parallel (since ’21) with YOY sales dips each year between ’14-’18. EPS R^2 is 0.83 (three data points) but Value Line gives an Earnings Predictability score of 30.

Since 2021, PTPM trails peer and industry averages despite increasing from 3.4% to 8.3% (mean 5.6%). ROE leads industry averages while increasing from 12.6% to 17.9% (mean 14.0%). Debt-to-Capital is less than industry averages while falling from 49.6% to 45.1% (mean 46.7%).

Quick Ratio is 1.2 and Interest Coverage is 6.6 per M* who assigns a “Narrow” [Quantitative] Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 12.2% and 8.9% for ’24 and ’25, respectively (based on 8 analysts).
• Zacks projects YOY 12.2% and 9.2% for ’24 and ’25, respectively (6 analysts).
• Value Line projects 9.4% annualized growth from ’23-’28.
• CFRA provides ACE contraction of 12.1% YOY and 10.5% per year for ’24 and ’23-’25, respectively (9).
• M* provides a 2-year ACE of 11.0% per year.

My 8.0% per year forecast is near bottom of the range.

With regard to EPS growth:

• MarketWatch projects 3.9% contraction and 4.9% growth per year for ’23-’25 and ’23-’26 (based on 10 analysts).
• Nasdaq.com projects growth of 15.6% YOY and 16.3% per year for ’25 and ’24-’26 ( 7/7/3 analysts for ’24/’25/’26 ).
• Seeking Alpha projects 4-year annualized growth of 20.0%.
• YF projects YOY 17.6% contraction and 15.6% growth for ’24 and ’25 and 5-year annualized growth of 10.0% (8).
• Zacks projects YOY 17.6% contraction and 15.6% growth for ’24 and ’25 and 5-year annualized growth of 10.8% (7).
• Value Line projects 5.1% annualized growth from ’23-’28.
• CFRA projects contraction of 16.2% YOY and 1.7% per year for ’24 and ’23-’25, respectively (4).
• M* projects long-term growth of 10.0%.

The spectre of data duplication is raised with YF and Zacks having almost identical estimates. Even assuming this to be the case, however, the mean [of four] is little changed [at 11.5% per year].

My 8.0% per year forecast is near bottom of the long-term-estimate range (mean of five: 11.2%). Initial value is 2024 Q2 EPS of $1.19/share (annualized) rather than ’23 EPS of $1.52.

My Forecast High P/E is 24.0. From 2021-3, high P/E is 37.5, 43.2, and 24.1, respectively (mean 34.9). The mean average P/E is 27.8. I am below the range.

My Forecast Low P/E is 19.0. From 2021-3, low P/E is 20.0, 25.7, and 16.4, respectively (mean 20.7). I am forecasting in lower portion of the range.

My Low Stock Price Forecast (LSPF) of $22.60 is default based on initial value given above. This is 29.0% less than the previous closing price and 13.4% less than the 52-week low.

These inputs land OPCH in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) of 3.4% 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 only 10 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, and Forecast Low P/E, are 9.7%, 10.0%, 28.1, and 17.7, respectively. I am lower on all but the latter (19.0). Value Line’s projected average annual P/E of 29.0 is greater than MS (22.9) and greater than mine (21.5).

MS high / low EPS are $2.38 / $1.45 versus my $1.75 / $1.19 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s $1.90 is in the middle.

MS LSPF of $22.90 implies Forecast Low P/E of 15.8: less than the above-stated 17.7. MS LSPF is 10.8% less than the default $1.45/share * 17.7 = $25.67 resulting in more conservative zoning. MS LSPF is 1.3% greater than mine, however.

With regard to valuation, PEG is 2.4 and 3.1 per Zacks and my projected P/E, respectively: a bit rich. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.96.

MOS is robust because my inputs (including quarterly initial value) are near or below respective analyst/historical ranges. While MS sample size is too small for a meaningful comparison, its 15.3% TAR is anecdotally 9.6% per year greater than mine.

With only three years of profitable data recorded, I think estimates have to lean conservative because few analysts have little on which to base judgments.

Per U/D, OPCH is a BUY under $27/share. BI TAR criterion is met at $21/share given a forecast high price of $42 (no dividend).

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