GOOG Stock Study (5-9-23)

I recently did a stock study on Alphabet, Inc. (GOOG) with a closing price of $108.24. A previous study on this company can be seen here.

M* writes:

     > Alphabet is a holding company. Internet media giant
     > Google is a wholly owned subsidiary. Google generates
     > 99% of Alphabet revenue, of which more than 85% is
     > from online ads. Google’s other revenue is from sales
     > of apps and content on Google Play and YouTube, as
     > well as cloud service fees and other licensing
     > revenue. Sales of hardware such as Chromebooks, the
     > Pixel smartphone, and smart home products, which
     > include Nest and Google Home, also contribute to other
     > revenue. Alphabet’s moonshot investments are in its
     > other bets segment, where it bets on technology to
     > enhance health (Verily), faster internet access to homes
     > (Google Fiber), self-driving cars (Waymo), and more.

This mega-sized (revenue > $50B) company has grown sales and EPS at annualized rates of 19.2% and 13.2% per year, respectively, for the last decade. Revenue is up and straight while earnings from 2013 did not show growth until 2018 and beyond. Excluding ’21, which was an upside outlier, PTPM has averaged 25.2% for the last five years, is steady over the last 10, but has solidly trailed peer and industry averages.

Over the last five years, ROE averages 18.4% while trailing peer and industry averages. Debt-to-Capital, under 11% for the last decade, averages 6.6% for the last five years and is lower than peer and industry averages. Interest Coverage and Quick Ratio are 200 and 2.2 while M* and Value Line give Exemplary and A++ grades for Capital Allocation and Financial Strength.

I forecast long-term annualized sales growth of 8% based on the following:

• CNN Business projects growth of 5.8% YOY and 8.4% per year for ’23 and ’22-’24, respectively (based on 46 analysts).
• YF projects YOY 6.0% and 11.0% YOY growth for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 6.1% and 10.6% for ’23 and ’24, respectively (12).
• Value Line projects 8.5% annualized growth from ’22-’27.
• CFRA projects 5.9% YOY and 7.9% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year annualized ACE of 6.8% per year and 11.0% per year for the next five years in its analyst note.

I am projecting below the two long-term estimates.

I forecast long-term annualized EPS growth of 11% based on the following:

• CNN Business reports ACE of 17.5% YOY and 17.9% per year for ’23 and ’22-’24, respectively (based on 46 analysts), along with 5-year annualized growth of 17.3%.
• MarketWatch projects 15.9% and 16.5% per year for ’22-’24 and ’22-’25, respectively (51 analysts).
• Nasdaq.com projects 19.4% and 17.7% growth/year for ’23-’25 and ’23-’26 (15, 6, and 2 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 16.9%.
• YF projects YOY 16.4% and 17.1% for ’23 and ’24, respectively (34), along with 5-year annualized growth of 17.6%.
• Zacks projects YOY 18.2% and 15.6% for ’23 and ’24, respectively (15), along with 5-year annualized growth of 14.5%.
• Value Line projects 11.9% per year from ’22-’27.
• CFRA projects YOY 16.9% and 14.7% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 20.0%.
• M* has long-term ACE at 13.3% per year.

I am forecasting below the long-term-estimate range (mean of six: 15.3%).

My Forecast High P/E is 25. High P/E has ranged from 27.1 (’21) to 34.1 (’15) since 2014 with a 5-year average of 28.9. The trend has been down. I am forecasting below the range.

My Forecast Low P/E is 15. Low P/E has trended down from 24.0 in ’14 to 15.1 in ’21 with a last-5-year average (excluding the ’17 upside outlier of 42.9) of 18.8. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is $70.60, which is default given the most recent EPS (at $5.04/share, Q3 ’22 is the third straight quarter in decline). This is 34.8% less than the previous close and 15.4% less than the 52-week low.

These inputs land GOOG in the HOLD zone with an U/D ratio of 2.8. Total Annualized Return (TAR) is 14.4%.

PAR (using Forecast Average—not High—P/E) is 8.9%, which is less than I want to see. 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 674 studies done in the past 90 days (my study along with 84 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%, 13.2%, 27.2, and 18.6. I am lower across the board. Value Line projects a future average annual P/E of 25.0, which is higher than MS (22.9) and much higher than mine (20.0). MOS backing the current study seems robust.

With regard to other data, MS high and low EPS are $8.53/share and $4.55/share compared to my $8.49 and $5.04. I am surprised the former is not even greater than mine given a 2.2% higher MS projected growth rate. I’m not exactly sure where the $4.55 comes from, either. By default, earlier studies should use a low EPS equal to or higher (Q2 ’22: $5.38/share) than mine. MS LSPF of $79.30 implies a Forecast Low P/E of 17.4 (versus the above-stated 18.6), is 12.3% higher than mine, and is 6.3% lower than the $4.55 * 18.6 = $84.63 default.

I would look to buy GOOG under $106/share.