BC Stock Study (7-24-24)

Posted by Mark on September 12, 2024 at 06:52 | Last modified: July 25, 2024 14:31

I recently did a stock study on Brunswick Corp. (BC) with a closing price of $77.17.

M* writes:

     > Brunswick is a leading manufacturer in the marine recreation
     > industry. The firm has more than 60 brands delivering products
     > across propulsion (outboard, sterndrive, and inboard engines,
     > propulsion-related controls, rigging, and propellers), parts,
     > accessories, and technology, and boats (including well-known
     > brands like Boston Whaler and Sea Ray). It also owns numerous
     > Freedom Boat Club (shared ownership) locations as well as
     > Boateka, which facilitates transactions in the used boat market.
     > Brunswick’s focus surrounds building the innovative marine and
     > recreational experiences, technologies, and connections
     > supported by quality and innovation.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 5.7% and 15.8%, respectively. Lines are somewhat up, straight, and parallel except for sales/EPS declines in ’19 (big) and ’23. 5-and 10-year EPS R^2 are 0.85 and 0.69, respectively, and Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM trails peer and industry averages through ’19 before crossing above while ranging from 2.7% in ’19 (downside outlier) to 12.6% in ’21 with a last-5-year mean of 9.7%. ROE mostly trails peer averages despite increasing from 14.9% (’14) to 20.1% (’23) with a last-5-year mean of 22.2%. Debt-to-Capital is less than peer and industry averages despite increasing from 28.0% (’14) to 55.4% (’23) with a last-5-year mean of 50.1%.

Value Line gives a B++ grade for Financial Strength and Interest Coverage of 8.0 versus 5.5 for M*. The latter reports Quick Ratio of 0.7, rates the company “Standard” for Capital Allocation, and assigns a “Narrow” Economic Moat.

With regard to sales growth:

• YF projects YOY 6.7% contraction and 5.9% growth for ’24 and ’25, respectively (based on 20 analysts).
• Zacks projects YOY 6.7% contraction and 123% growth for ’24 and ’25, respectively (8 analysts).
• Value Line projects 7.1% annualized growth from ’23-’28.
• CFRA projects contraction of 7.2% YOY and 0.8% per year for ’24 and ’23-’25, respectively (20).
• M* reports ACE 2-year annualized contraction of 0.2% while its analyst projects 5-year annualized growth of 3.0%.

My 2.0% per year forecast is less than both long-term estimates (notwithstanding Zacks questionable ’25 projection).

With regard to EPS growth:

• MarketWatch projects annualized contraction of 0.1% and 0.3% for ’23-’25 and ’23-’26 (based on 21 analysts).
• Nasdaq.com projects growth of 17.4% YOY and 9.6% per year for ’25 and ’24-’26 (9/9/2 analysts for ’24/’25/’26).
• YF projects YOY 18.8% contraction and 17.2% growth for ’24 and ’25 (18) and 5-year annualized growth of 15.0%.
• Zacks projects YOY 18.4% contraction and 17.3% growth for ’24 and ’25, respectively (9).
• Value Line projects 7.9% annualized growth from ’23-’28.
• CFRA gives ACE 16.5% YOY and 16.7% per year for ’24 and ’23-’25, respectively (19).
• M* projects long-term annualized growth of 14.3%.

My 7.0% per year forecast is below the long-term-estimate range (mean of three: 12.4%). Initial value is 2024 Q1 EPS of $5.57/share (annualized) rather than ’23 EPS of $6.13.

My Forecast High P/E is 15.0. Over the past decade, high P/E falls from 25.5 (’14) to 16.3 (’13) with a last-5-year mean (excluding 173 in ’19) of 15.3 and a last-5-year-mean average P/E of 14.1 (also excluding 114 low P/E in ’19). I am near bottom of the range [only ’22 is less (11.4)].

My Forecast Low P/E is 9.0. Over the past decade, low P/E falls from 18.6 (’14) to 10.8 (’23) with a last-5-year mean (excluding 114 in ’19) of 8.3. I am forecasting below the latter and near the range bottom [’20 (5.4) and ’22 (6.8) are less].

My Low Stock Price Forecast (LSPF) is $54.00. Default ($44.60) based on initial value seems unreasonably low at 42.2% less than previous close and 32.9% less than 52-week low. My (arbitrary) projection is 30.0% and 18.8% less, respectively.

Over the past decade, Payout Ratio (PR) ranges from 16.1% in ’22 to 32.9% in ’17 with a last-5-year mean (excluding 242% outlier in ’19) of 20.0%. I am forecasting below the range at 16.0%

These inputs land BC in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) of 4.3% 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 only four studies (my study and two 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 8.0%, 8.0%, 14.4, 7.9, and 64.3%, respectively. I am higher on the P/E range. Value Line’s projected average annual P/E of 12.0 is higher than MS (11.2) and equal to mine.

MS high / low EPS are $9.01 / $6.00 versus my $7.81 / $5.57 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s high EPS of $12.85 soars above both.

MS LSPF of $48.00 implies Forecast Low P/E of 8.0: a near match to the 7.9 above. MS LSPF is 11.1% less than mine thereby resulting in more conservative zoning.

With regard to valuation, PEG is 1.9 per my projected P/E: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is elevated at 1.2 with the two upside P/E outliers from ’19 excluded.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 15.1% TAR is 5.5%/year greater than mine.

For a more detailed look (i.e. Ann C’s “other 20%”), I could dig into past 10-Ks to better explain 2019 for possible exclusion from the visual analysis. I skipped this because I don’t feel it affects future forecasts.

Per U/D, BC is a BUY under $69/share. BI TAR criterion is met < $59/share given a forecast high price ~$117.

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