MYRG Stock Study (9-4-24)

I recently did a stock study on MYR Group, Inc. (MYRG) with a closing price of $94.19. The previous study is here.

M* writes:

     > MYR Group Inc is a U.S.-based holding company that provides
     > specialty electrical construction services through its
     > subsidiaries. The company operates through two segments.
     > The transmission and distribution segment provides designing,
     > engineering, procurement, construction, upgrade, maintenance,
     > and repair services on transmission and distribution network
     > and substation facilities. The commercial and industrial
     > segment provides services such as the design, installation,
     > maintenance, and repair of commercial and industrial wiring,
     > installation of traffic networks, and the installation of
     > bridges. MYR Group generates the majority of its sales from
     > the United States and Canada.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 16.4% and 19.9%. Lines are mostly up, straight, and parallel except for EPS declines in ’15, ’16, and ’22. Five- and 10-year EPS R^2 are 0.83 and 0.84, respectively, and Value Line gives an Earnings Predictability score of 80.

Over the past decade, PTPM trails peer and industry averages while falling from from 6.1% (’14) to 3.4% (’23) with a last-5-year mean of 3.6%. ROE leads peer and industry averages while increasing from 11.3% (’14) to 14.4% (’23) with a last-5-year mean of 14.3%. Debt-to-Capital is much lower than peer and industry averages despite increasing from 0% (’14) to 10.2% (’23) with a last-5-year mean of 14.3%.

Quick Ratio is 1.3 and Interest Coverage is 13.2 per M* who assigns a “Narrow” (quantitative) economic moat. Value Line grades the company B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 2.3% contraction and 3.4% growth for ’24 and ’25, respectively (based on 3 analysts).
• Zacks projects YOY 1.5% contraction and 2.5% growth for ’24 and ’25, respectively (2 analysts).
• Value Line projects 10.9% annualized growth from ’23-’28.
• CFRA provides ACE of 2.3% YOY contraction and 2.3% growth per year for ’24 and ’23-’25, respectively (4).

My 3.0% per year forecast discounts the long-term estimate based on lower short-term growth projections.

With regard to EPS growth:

• MarketWatch projects 16.4% and 17.1% per year for ’23-’25 and ’23-’26, respectively (based on 5 analysts).
• Nasdaq.com projects 86.5% YOY for ’25 (2).
• Seeking Alpha projects 4-year annualized growth of 10.0%.
• YF projects YOY 73.0% contraction and 290% growth for ’24 and ’25 along with 5-year annualized growth of 20.0% (3).
• Zacks projects YOY 42.4% contraction and 86.5% growth for ’24 and ’25, respectively (2).
• Value Line projects 20.2% annualized growth from ’23-’28.
• CFRA provides ACE of 73.0% YOY contraction and 9.0% growth per year for ’24 and ’23-’25, respectively (4).

My 9.0% per year forecast is below the long-term-estimate range (mean of three: 16.7%). Initial value is ’23 EPS of $5.40/share rather than TTM EPS of $2.92.

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 16.8 in ’14 to 34.2 in ’17 with a last-5-year mean of 22.2 and last-5-year-mean average P/E of 18.0 (excluding 2020 low P/E of 4.7). I am near bottom of the range [only ’14 and ’19 (16.9) are less].

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 11.2 in ’21 to 18.0 in ’17 (excluding 4.7 in ’20) with a last-5-year mean of 13.8 (excluding ’20). I am forecasting near bottom of the range [only ’21 and ’19 (11.9) are less].

My Low Stock Price Forecast (LSPF) of $70.20 is default based on initial value given above. This is 25.5% (24.1%) less than the previous close (52-week low).

These inputs land MYRG in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 8.4%.

PAR (using Forecast Average—not High—P/E) of 5.8% is less than I seek in 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 16 studies (my study and 7 other 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%, 15.1%, 22.2, and 12.0, respectively. I am lower on all but the latter (13.0). Value Line’s projected average annual P/E of 18.0 is higher than MS (17.1) and higher than mine (15.0).

MS high / low EPS are $8.12 / $4.88 versus my $8.31 / $5.40 (per share). MS range is lower due to a lower initial value. Value Line’s $13.55 high EPS soars above both.

MS LSPF of $73.10 implies a 15.0 Forecast Low P/E: greater than the above-stated 12.0. MS LSPF is 24.8% greater than than the default $4.88/share * 12.0 = $58.56, which results in more aggressive zoning. MS LSPF is also 4.1% greater than mine.

With regard to valuation, PEG is 3.3 per my projected P/E. Relative Value [(current P/E) / 5-year-mean average P/E] is also quite high at 1.79. Both are influenced by a sudden drop in TTM EPS.

MOS is robust because my inputs are near or below respective analyst/historical ranges. MS sample size is too small for a valid comparison, but anecdotally MS TAR of 9.2% is 0.8%/year greater than mine.

Per U/D, MYRG is a BUY under $88. BI TAR criterion is met ~ $71/share based on forecast high price ~ $142 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).