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DEO Stock Study (10-13-23)

Posted by on January 11, 2024 at 06:41 | Last modified: October 13, 2023 10:52

I recently did a stock study on Diageo PLC ADR (DEO) with a closing price of $151.30.

M* writes:

     > The product of a merger between Grand Metropolitan and Guinness
     > in 1997, Diageo is one of the world’s leading producers of branded
     > premium spirits, approximately level with Kweichow Moutai in
     > revenue terms. It also produces and markets beer and wine. Brands
     > include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal
     > Canadian whiskey, Captain Morgan rum, Casamigos tequila, Tanqueray
     > gin, Baileys Irish Cream, and Guinness stout. Diageo also owns 34%
     > of premium champagne and cognac maker Moet Hennessy, a
     > subsidiary of French luxury-goods maker LVMH Moet Hennessy-Louis
     > Vuitton, and a near-56% stake in India’s United Spirits.

Over the past decade excluding 2020 (COVID-19), this large-size company has grown sales and EPS at annualized rates of 2.6% and 3.3%, respectively (2.2% and 1.8% including ’20). Lines are somewhat up, straight, and parallel with sales declines in ’16 and ’17 along with EPS declines in ’15, ’16, and ’21. A question can be asked about whether this is high-quality growth. I listed several YOY declines. Some would also say a large company with a sub-5.0% historical/projected growth rate is suspect.

Over the past decade, PTPM trails industry averages (peer data not available) while ranging from 17.4% in ’20 to 32.9% in ’19 with a last-5-year mean of 27.1%. ROE trails industry averages despite trending higher from 31.6% (’14) to 43.2% (’23) with a last-5-year mean of 35.9%. Debt-to-Capital is lower than industry averages despite increasing from 58.2% (’14) to 68.4% (’23) for a last-5-year mean of 67.4%.

Interest Coverage is 7.0 and Quick Ratio is 0.5. Value Line rates the company A for Financial Strength and M* gives a “Standard” rating for Capital Allocation.

With regard to sales growth:

I am forecasting toward the lower end of the range at 2.0% per year.

With regard to EPS growth:

My 6.0%/year forecast is below the 6-long-term-estimate range (mean 7.9%). Initial value is ’23 EPS of $7.91/share.

As a partial aside, I don’t usually believe a significant difference between sales and EPS growth rates is sustainable. Because the analysis depends more on EPS than sales growth, I attempt to make reasonable, independent predictions for both. Were it deemed necessary, I would be more likely to alter a sales growth forecast to narrow the difference since fewer long-term sales than EPS estimates are available.

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 22.0 in ’15 to 32.4 in ’21 (2020’s 58.4 excluded) with a last-5-year mean of 28.1 and last-5-year-mean average P/E of 25.7. I am forecasting at the bottom of the range.

My Forecast Low P/E is 15.0. Over the past decade, low P/E ranges from 18.0 in ’15 to 22.4 in ’22 (2020’s 33.3 excluded) for a last-5-year mean of 20.7. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $118.70 is default based on $7.91/share EPS. This is 21.5% less than the previous closing price, 19.0% less than the 52-week/2022 low stock price, and 6.6% less than the ’21 low stock price.

Over the past decade, Payout Ratio ranges from 46.8% in ’23 to 64.6% in ’16 (2020’s 115.9% excluded) with a last-5-year mean of 52.5%. I am forecasting just below the range at 46.0%.

These inputs land DEO in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) of 7.3% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 17 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 Payout Ratio are 3.5%, 6.7%, 24.6, 18.8, and 60.6%. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is just higher than MS (21.7) and higher than mine (18.5).

MS high / low EPS are $10.73 / $5.72 versus my $10.58 / $7.91 (per share). MS low EPS seems like an “unreasonable” candidate. $5.72/share would be the lowest annual EPS since $5.46 in 2017. Looking closer at MS, five studies (29.4% of the sample) use $5.28 or lower with three studies at zero (definitely unreasonable). A case could be made to recognize the $7.00 median as MS low EPS instead. With regard to high EPS, mine is lower due to a lower growth rate. Value Line’s high EPS is $11.00/share. I am lowest of the three.

MS LSPF of $124.60 implies a Forecast Low P/E of 21.8: greater than the above-stated 18.8. MS LSPF is 15.9% greater than the default $5.72/share * 18.8 = $107.54 [the large discrepancy is another suggestion that MS low EPS may be too extreme], which results in more aggressive zoning. MS LSPF is also 5.0% greater than mine.

My TAR (over 15.0% preferred) is less than the 12.7% from MS. The MS sample size is too small to allow for a valid comparison alone. Based on input selection below or near the bottom of analyst and historical P/E ranges including LSPF less than multi-year lows, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.6 and 3.1 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is somewhat cheap at 0.8. Kim Butcher’s Quick and Dirty DCF prices the stock at 17.0 * [$12.90 – ($5.00 + $3.20)] = $79.90, which suggests the stock to be 47.2% undervalued. The “quick and dirty” sometimes produces such wild results. I don’t know if it’s a reflection of cash flow inefficiency, currency conversion, something else, or a true reflection of stock price.

DEO is a BUY under $147. With a forecast high price around $232, TAR should meet my 15% criterion around $116/share.

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TSCO Stock Study (10-12-23)

Posted by on January 9, 2024 at 06:17 | Last modified: October 12, 2023 11:49

I recently did a stock study on Tractor Supply Co (TSCO) with a closing price of $204.31.

M* writes:

     > Tractor Supply is the largest operator of retail farm and ranch
     > stores in the United States. The company targets recreational
     > farmers and ranchers and has little exposure to commercial and
     > industrial farm operations. Currently, the company operates
     > 2,181 of its namesake banners in 49 states, along with 192
     > Petsense by Tractor Supply stores and 81 Orscheln Farm and
     > Home stores (to be converted to Tractor Supply banners). Stores
     > are generally concentrated in rural communities, as opposed
     > to urban and suburban areas. In fiscal 2022, revenue consisted
     > primarily of livestock and pet (50%), hardware, tools, and
     > truck (19%), and seasonal gift and toy (21%).

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 11.6% and 17.2%, respectively. Lines are generally up, straight, and parallel without a single YOY decline. PTPM leads peer and industry averages, ranging from 8.6% in ’18 to 10.4% in ’15 with a last-5-year mean of 9.3%.

Also over the past decade, ROE leads peer and industry averages by increasing from 27.4% (’13) to 55.2% (’22) with a last-5-year mean of 43.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 0.1% (’13) to 67.6% (’22) for a last-5-year mean of 56.8%.

Quick Ratio is only 0.3, but Current Ratio is 1.6 and Interest Coverage (M*) is 35.4. M* gives an “Exemplary” rating for Capital Allocation, and Value Line rates the company A+ for Financial Strength.

With regard to sales growth:

I am forecasting conservatively below the range at 4.0% per year.

With regard to EPS growth:

I am forecasting below the range of six long-term estimates (mean 9.1%). I will use ’22 EPS of $9.71/share as the initial value rather than 2023 Q2 EPS of $10.01 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E decreases from 33.7 (’13) to 24.9 (’22) with a low value of 22.7 in ’18 and last-5-year mean of 24.9. The last-5-year-mean average P/E is 19.8. I am forecasting below the 10-year range.

My Forecast Low P/E is 16.0. Over the past decade, low P/E goes from 19.1 (’13) to 17.1 (’22) with a last-5-year mean of 14.8. I am forecasting near the bottom of the range [only ’20 (10.0) and ’18 (13.5) are lower].

My Low Stock Price Forecast (LSPF) of $155.40 is default based on $9.71/share. This is 23.9% less than the previous closing price and 17.0% less than the 52-week low.

Over the past decade, Payout Ratio increases from 21.1% (’13) to 37.9% (’22) with a last-5-year mean of 28.5%. I am forecasting just below the range at 21.0%.

These inputs land TSCO in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.0%.

PAR (using Forecast Average—not High—P/E) of 5.4% is less than I seek in a large-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 316 studies (my study and 175 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 Payout Ratio are 7.5%, 9.3%, 24.3, 14.8, and 27.9%. I am lower on everything but Forecast Low P/E (16.0). Value Line’s projected average annual P/E of 22.0 is higher than MS (19.6) and higher than mine (18.5).

MS high / low EPS are $15.47 / $9.56 versus my $13.62 / $9.71 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $16.15. I am lowest of the three.

MS LSPF of $150.20 implies a Forecast Low P/E of 15.7: less than the above-stated 14.8. MS LSPF is 6.2% greater than the default $9.56/share * 14.8 = $141.49, which results in more aggressive zoning. MS LSPF is still 3.4% less than mine.

My TAR (over 15.0% preferred) is much less than the 13.2% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.6 and 2.7 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.03. Kim Butcher’s “quick and dirty DCF” prices the stock at 15.0 * [$20.80 – ($5.50 + $0.00)] = $229.50, which suggests the stock to be 11.0% undervalued [NOTE: Value Line does not include “Capital Expenditures” in this statistical matrix. Looking at the 2022 10-K, I calculate this to be $773.4M / 112.1M shares = $6.90/share for ’22. Plugging this in for the $0.00 above cuts the stock valuation drastically to $126.00. Hopefully I have not overlooked anything as I’ve never done this calculation before].

TSCO is a BUY under $188. With a forecast high price at $286, TAR should meet my 15% criterion around $143/share.

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AAP Stock Study (10-26-23)

Posted by on January 6, 2024 at 06:22 | Last modified: October 26, 2023 14:06

I recently did a stock study on Advance Auto Parts Inc. (AAP) with a closing price of $49.84.

Value Line writes:

     > Advance Auto Parts, Inc. is a leading retailer of aftermarket auto
     > parts and accessories. Serves both the DIY and professional markets.
     > As of 12/31/22, operated 4,770 stores and 316 branch locations in
     > the U.S., Canada, Puerto Rico, and the Virgin Islands, primarily
     > under the Advance Auto Parts, Autopart International, Carquest, and
     > Worldpac banners. In addition to the 330 Carquest locations that
     > the company owns, serves approx. 1,310 independently owned stores
     > that operate under the Carquest name. Has about 40,000 full-time
     > employees and 27,000 part timers.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 3.6% and 4.4%, respectively. Lines are somewhat up and parallel but certainly not straight with sales declines in ’15, ’16, and ’17 along with EPS declines in ’15, ’16, ’18, and ’22. For me, visual inspection does not clear the barbed wire fence. I will continue the study for purposes of interest and the possibility of a speculative [not core] position.

Over the past decade, PTPM trails peer and industry averages while declining from 9.6% (’13) to 5.8% (’22) with a last-5-year mean of 6.4%. ROE leads industry averages while tracking evenly with peers in declining from 26.4% (’13) to 18.0% (’22) with a last-5-year mean of 13.6%. Debt-to-Capital is lower than peer and industry averages despite increasing from 41.0% (’13) to 57.7% (’22) with a last-5-year mean of 44.5%.

Quick Ratio per M* is a worrisome 0.21, but Interest Coverage per Value Line is 21.3. Value Line gives a “B+” rating for Financial Strength.

With regard to sales growth:

I am forecasting toward the lower end of the range at 1.0% per year.

With regard to EPS growth:

My -9.0% per year forecast is toward the lower end of the long-term-estimate range (mean of five: -6.9%). For low EPS, I will use a growth rate of -15.0%, which is rounding down the bottom of that range. These result in high and low EPS values of $5.16 and $3.67/share, respectively.

My Forecast High P/E is 21.0. Over the past decade, high P/E increases from 21.0 (’13) to 29.6 (’22) with a last-5-year mean of 27.6 and a last-5-year-mean average P/E of 21.6. I am forecasting at the bottom of the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 10.0 in ’20 to 22.3 in ’15 with a last-5-year mean of 15.6. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) of $36.70 is default based on $3.67/share initial value. This is 30.4% less than the previous closing price and 23.1% less than the 52-week low.

Payout Ratio ranges from 3.5% in ’19 to 4.5% in ’13 before blasting off to 14.0%, 34.0%, and 72.6% in ’20, ’21, and ’22, respectively. I am forecasting below the range at 3.0%.

These inputs land AAP in the BUY zone with a U/D ratio of 4.5. Total Annualized Return (TAR) is 17.0%.

PAR (using Forecast Average—not High—P/E) of 10.1% is decent for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 28 studies (my study and 6 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 Payout Ratio are 3.0%, 8.5%, 24.1, 14.8, and 9.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.0 is less than MS (19.5) and less than mine (15.5).

MS high / low EPS are $11.28 / $5.83: much higher than my EPS range given above. With MS having the low sample size, I am not surprised to see big differences. Value Line’s high EPS is $10.00. I am lowest of the three by a substantial amount.

MS LSPF of $63.60 (invalid on today’s date) implies a Forecast Low P/E of 10.9: less than the above-stated 14.8. MS LSPF is 26.3% less than the default $5.83/share * 14.8 = $86.28 (also invalid on today’s date), which results in more conservative zoning. MS LSPF is still 83.3% greater than mine. Again, with MS having the low sample size, I am not surprised to see big differences (along with invalid ranges).

My TAR (over 15.0% preferred) is much less than the 38.8% from MS. Even discounting MOS relative to MS due to the low sample size, MS seems robust in the current study looking at my inputs relative to analyst estimates and historical ranges.

I track a few different valuation metrics. PEG is 0.94 per Zacks: slighly undervalued (something I very rarely see). Relative Value [(current P/E) / 5-year-mean average P/E] per M* is tremendously undervalued at 0.3. Kim Butcher’s “quick and dirty DCF” prices the stock at 11.0 * [$14.65 – ($4.00 + $5.65)] = $55.00: undervalued by 10.4%. Although I usually see these metrics conflict, they all agree here.

AAP is clearly not a high-quality growth stock right now. It does seem to be dirt cheap and a potential “value play.” This conservative analysis has it a BUY under $54/share. Do realize, though, that per Value Line the stock is down just over 60% over the last year, 3 years, and 5 years. Any investment should probably be done small in the speculative portion of the portfolio (if there is one) in case the doldrums—or worse—are to continue.

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NICE Stock Study (10-11-23)

Posted by on January 5, 2024 at 06:16 | Last modified: October 11, 2023 10:45

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $163.40. The original study is here.

M* writes:

     > Nice is an enterprise software company that serves the customer
     > engagement and financial crime and compliance markets. The company
     > provides data analytics-based solutions through both a cloud
     > platform and on-premises infrastructure. Within customer
     > engagement, Nice’s CXone platform delivers solutions focused on
     > contact center software and workforce engagement management,
     > or WEM. Contact center offerings include solutions for digital
     > self-service, customer journey and experience optimization, and
     > compliance. WEM products optimize call center efficiency,
     > leveraging data and AI analytics for call volume forecasting and
     > agent scheduling. Within financial crime and compliance, Nice
     > offers risk and investigation management, fraud prevention,
     > anti-money laundering, and compliance solutions.

Over the past decade, this medium-size company has grown sales and EPS at 10.3% and 12.9% per year, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’15 and EPS dip in ’16. PTPM leads peer and industry averages while trending up from 8.8% (’13) to 15.8% (’22) with a last-5-year mean of 14.1%.

Also over the past decade, ROE leads peer and industry averages while trending up from 4.4% (’13) to 8.7% (’22) with a last-5-year mean of 7.9%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.6%.

Quick Ratio is 2.0 and Interest Coverage is 21.8. Value Line assigns an A rating for Financial Strength while M* rates the company “Exemplary” for Capital Allocation.

With regard to sales growth:

I am forecasting conservatively below the range at 8.0% per year.

With regard to EPS growth:

I am forecasting conservatively below the long-term-estimate range (mean of six: 12.9%) at 11.0% per year and using ’22 EPS of $4.00/share as the initial value rather than 2023 Q2 $4.60 (annualized).

My Forecast High P/E is 40.0. Over the past decade, high P/E ranges from 29.9 in ’15 to 107.3 in ’21 with a last-5-year mean of 76.8 (last-10-year median is 47.5). The last-5-year-mean average P/E is 60.3. The most recent three years all seem extreme (96.9, 107.3, 76.5). The last-10-year mean excluding these is 40.8. I am forecasting just below the latter.

My Forecast Low P/E is 32.0. Over the past decade, low P/E ranges from 20.9 in ’15 to 41.2 in ’22 (excluding 70.9 in ’21). The last-5-year mean (outlier excluded) is 36.9 and the last-10-year median is 34.6. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $128.00 is default based on $4.00/share initial value. This is 21.7% less than the previous close and 20.1% less than the 52-week low.

Payout Ratio decreases from 53.9% in ’13 to zero in ’18 where it has remained ever since. I will not forecast a dividend until reason is given to do otherwise [interesting that while MS (see below) has a median value of zero, the mean is 7.2% as 16 studies have values of 6.9% or greater].

These inputs land NICE in the BUY zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.5%.

PAR (using Forecast Average—not High—P/E) of 8.2% 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 on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 41 studies (my study and 20 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 10.0%, 12.2%, 44.3, and 32.0, respectively. I am lower on the first three and equal on the latter. Value Line’s projected average annual P/E of 30.5 is lower than MS (38.2) and lower than mine (36.0).

MS high / low EPS are $7.80 / $4.15 versus my $6.74 / $4.00 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $15.25. I am lowest of the three.

MS LSPF of $136.40 implies a Forecast Low P/E of 32.9: greater than the above-stated 32.0. MS LSPF is 2.6% less than the default $4.15/share * 32.0 = $132.80, which results in more conservative zoning. MS LSPF is still 6.6% greater than mine.

My TAR (over 15.0% preferred) is less than the 14.8% from MS. Although the MS sample size is somewhat small, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.5 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 22.0 * [$18.55 – ($0.00 + $0.95)] = $387.20 thus suggesting the stock to be 57.8% undervalued.

NICE is a BUY under $225. With a forecast high price of $270, TAR should meet my 15% criterion around $135/share.

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RHI Stock Study (10-5-23)

Posted by on January 3, 2024 at 06:42 | Last modified: October 5, 2023 12:32

I recently studied Robert Half Inc. (RHI) with a closing price of $73.59.

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 4.7% and 11.8%. Lines are mostly up, straight, and parallel with a sales decline in ’20 along with EPS declines in ’16, ’17, and ’20. PTPM leads peer and most industry averages while ranging from 8.3% in ’20 to 12.4% in ’21 (and ’22) with a last-5-year mean of 10.7%.

Also over the past decade, ROE trails peer averages and is about even with the industry despite increasing from 28.0% (’13) to 43.6% (’22) with a last-5-year mean of 38.5%. Debt-to-Capital is lower than peer and industry averages as the company has no debt; the last-5-year mean is 13.8% (e.g. uncapitalized leases, rentals).

Quick Ratio is 1.3. Value Line gives an A+ rating for Financial Strength and M* rates “Exemplary” for Capital Allocation.

With regard to sales growth:

I am discounting the long-term estimate to zero due to all the negative short-term projections.

With regard to EPS growth:

The data duplication concern is in play as two of the five long-term estimates are identical to the two decimal places given. These are CNN Business (FactSet) and Seeking Alpha (S&P Global), which are both at 0.78%. I will ignore because if duplicates, then the study is biased conservatively as I would like.

The mean of five long-term estimates is 1.8%. I will discount this to zero as my forecast. I will use ’22 EPS of $6.03/share [arbitrary] as high EPS and 2023 Q2 EPS of $5.04 (annualized) as [an arbitrary] low EPS in an effort to be conservative.

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 21.7. The last-5-year-mean average P/E of 17.0 is also my forecast and below the entire high P/E range.

My Forecast Low P/E is 11.0. Over the past decade, low P/E has decreased from 16.7 (’13) to 10.8 (’22) with a last-5-year mean of 12.4. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) of $55.40 is default based on $6.03/share EPS. This is 24.7% less than the previous closing price and 14.4% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 28.4% in ’21 to 50.4% in ’20 with a last-5-year mean of 34.1%. I am forecasting just below the range at 28.0%.

These inputs land RHI in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.6%.

PAR (using Forecast Average—not High—P/E) of 4.8% is less than the current yield on T-bills. 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 only 43 studies (my study and 9 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 Payout Ratio are 4.2%, 4.9%, 20.9, 13.9, and 34.1%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.5 is higher than MS (17.4) and higher than mine (14.0).

Even though my intent is 0%, the website interprets my EPS growth forecast to be 3.7%. Since the initial value ($6.03) is greater than the last quarter ($5.04 annualized), positive growth is calculated. I would affirm the above analysis to still be correct, however, because analyst growth estimates are understood to be projected from the last completed FY.

MS high / low EPS are $6.43 / $3.87 versus my $6.04 / $5.04 (per share). My high EPS is lower due to a lower growth rate and much lower than Value Line’s $7.50. With regard to low EPS, I am puzzled because the largest grouping of MS studies [13, which amounts to 29.5% of the total] uses a low EPS of $2.67 – $2.77 with nine at $2.69. I might argue this to be unreasonably low. 2020 EPS is a downside excursion to $2.70/share (30.8% YOY contraction presumably due to COVID-19). Before that, I have to go back to ’17 to find a lower EPS number ($2.33) and ’15 EPS is exactly $2.69. Why these studies think the company could regress so far is an unanswered question.

MS LSPF of $49.70 implies a Forecast Low P/E of 12.8: less than the above-stated 13.9. MS LSPF is 7.6% less than the default $3.87/share * 13.9 = $53.79, which results in more conservative zoning. MS LSPF is also 10.3% less than mine.

My TAR (>15.0% preferred) is much less than the 14.8% from MS. Despite a small MS sample size, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG of 3.8 per my projected P/E is “significantly overvalued.” Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slightly undervalued at 0.86. Kim Butcher’s “quick and dirty DCF” prices the stock at 17.0 * [$8.25 – ($2.72 + $0.70)] = $82.11, which suggests the stock to be 10.4% undervalued.

RHI is a BUY under $67. With a forecast high price of $102.70, TAR should meet my 15% criterion around $51/share.

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TTC Stock Study (10-3-23)

Posted by on December 30, 2023 at 06:29 | Last modified: October 3, 2023 11:09

I recently did a stock study on the Toro Co. (TTC) with a closing price of $82.85. The original study is here.

M* writes:

     > The Toro Co manufactures turf maintenance and landscaping equipment.
     > The company produces reel and rotary riding products, trim cutting and
     > walking mowers, greens rollers, turf sprayer equipment, underground
     > irrigation systems, heavy-duty walk-behind mowers, and sprinkler systems
     > used for professional turf and landscape maintenance and construction.
     > Its products are marketed through a network of distributors and dealers
     > to primarily professional users maintaining turfs and sports fields such
     > as golf courses. Its operating segments are Professional and
     > Residential. The company also produces snow plowers and ice
     > management products. Its largest end market is the United States.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 8.8% and 13.0%, respectively. Lines are mostly up, straight, and parallel without a single YOY decline. PTPM lags peers and leads industry averages while ranging from 10.3% in ’19 to 14.2% in ’18 with a last-5-year mean of 12.3%.

Also over the past decade, ROE leads peer and industry averages despite falling from 39.3% (’13) to 33.9% (’22) with a last-5-year mean of 33.9%. Debt-to-Capital is higher than peer and industry averages with a last-5-year average of 40.9%.

Interest Coverage is 9.3 and Quick Ratio is 0.59. Value Line rates the company B++ for Financial Strength.

With regard to sales growth:

I am forecasting below the long-term estimates at 5.0% per year.

With regard to EPS growth:

I am forecasting below the long-term estimate range (mean of three: 10.2%) at 8.0% per year. I will use 2023 Q3 EPS of $3.58/share (annualized) as the initial value rather than ’22 EPS of $4.20.

My Forecast High P/E is 24.0. Over the past decade, high P/E ranges from 21.4 in ’15 to 31.3 in ’21 with a last-5-year mean of 28.8. The last-5-year-mean average P/E is 24.2. I am forecasting just under the latter.

My Forecast Low P/E is 18.0. Over the past decade, low P/E ranges from 15.4 in ’13 to 21.7 in ’21 with a last-5-year mean of 19.7. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $64.40 is default based on $3.58/share initial value. This is 22.3% less than the previous closing price and 17.8% less than the 52-week low. While this is substantially lower than the latter, I stick to the 20.0% guideline; a small denominator is an easy way to bias U/D in favor of BUY.

Over the past decade, the lowest Payout Ratio is 21.4% in ’13 and the last-5-year mean is 31.4%. I am forecasting below the range at 21.0%.

These inputs land TTC in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 8.7%.

PAR (using Forecast Average—not High—P/E) of 5.9% is less than I seek in a medium-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 74 studies (my study and 19 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 Payout Ratio are 7.7%, 9.1%, 27.1, 18.7, and 31.3%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is less than MS (22.9) and less than mine (21.0).

MS high / low EPS are $6.80 / $4.48 versus my $5.02 / $3.58 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is greater than both at $7.00.

MS LSPF of $73.70 implies a Forecast Low P/E of 16.5: less than the above-stated 17.8. MS LSPF is 12.0% less than the default $4.48/share * 18.7 = $83.78 [invalid on today’s date]. This results in more conservative zoning. MS LSPF is still 14.4% greater than mine.

My TAR (over 15.0% preferred) is much less than the 15.4% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 3.1 per my projected P/E: significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is neutral at 0.95. Kim Butcher’s “quick and dirty DCF” prices the stock at 16.0 * [$7.95 – ($1.56 + $1.00)] = $86.24, which suggests it to be 3.9% undervalued.

TTC is a BUY under $78. With a forecast high price of $120.50, TAR should meet my 15% criterion closer to $60/share.

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LFUS Stock Study (9-28-23)

Posted by on December 28, 2023 at 06:19 | Last modified: September 28, 2023 11:05

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $243.51. Previous studies are here and here.

M* writes:

     > Littelfuse is a primary provider of circuit protection products
     > (such as fuses and relays) into the transportation, industrial,
     > telecommunications, and consumer electronics end markets. The
     > firm is also increasing its power semiconductor business, where
     > it predominantly serves industrial end markets and is breaking
     > into electric vehicle charging infrastructure.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 13.6% and 13.8%, respectively. Lines are generally up and parallel with sales declines in ’19 and ’20 along with EPS declines in ’15, ’19, and ’20. PTPM leads peer and industry averages while appearing cyclical with a last-5-year mean of 13.6%.

Also over the past decade, ROE leads peer averages and is roughly even with the industry by decreasing from 13.4% (’13) to 8.5% (’20) and recovering to 17.7% (’22) for a last-5-year mean of 12.3%. Debt-to-Capital is lower than industry averages while exceeding peers by increasing from 24.2% (’13) to 32.4% (’22) for a last-5-year mean of 30.6%.

Interest Coverage is 11.6 and Quick Ratio is 1.7. Value Line rates the company B++ for Financial Strength and M* gives a “Standard” rating for Capital Allocation, writing that the company has a sound balance sheet and low net debt.

With regard to sales growth:

I am discounting the long-term estimate by nearly half to 2.0% per year due to the negative short-term projections.

With regard to EPS growth:

Value Line is a downside outlier of six long-term EPS projections. Its left-margin table says 14.5% annualized from ’20-’22 to ’26-’28, but the statistical array projects as stated above.

I wonder about data duplication with companies covered by few analysts. Three of the six long-term estimates here are exactly 12.0% (not 11.8%, 12.1%, etc.) despite coming from three different data sources; could those be the same analysts?

The mean of 6 long-term estimates is 9.5%. If I count the duplicate estimates just once, then the mean (4 estimates) is 8.3%. I am cutting this by ~40% to get my 5.0% per year forecast. I will use 2023 Q2 EPS of $13.09/share (annualized) as the initial value rather than ’22 EPS of $14.94 to be conservative.

My Forecast High P/E is 21.0. Over the past decade, high P/E goes from 24.1 in ’13 to 48.5 in ’20 then back to 21.9 in ’22. The last-5-year mean high P/E is 34.6 and the last-5-year-mean average P/E is 27.7. I am forecasting below the entire range.

My Forecast Low P/E is 14.0. Over the past decade, low P/E goes from 15.3 in ’13 to 28.2 in ’17 before retreating to 12.9 in ’22. The last-5-year mean is 20.7. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) of $183.30 is default based on $13.78/share EPS. This is 24.7% less than the previous closing price and 4.6% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 15.1% in ’22 to 36.3% in ’20 with a last-5-year average of 25.2%. I am forecasting just below the range at 15.0%.

These inputs land LFUS in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) of 4.6% 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 114 studies (my study and 43 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 Payout Ratio are 7.8%, 8.3%, 26.0, 17.8, and 26.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 22.0 is just higher than MS (21.9) and much higher than mine (17.5).

MS high / low EPS are $19.68 / $13.28 versus my $16.71 / $13.09 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $19.25. I am lowest of the three.

MS LSPF of $189.30 implies a Forecast Low P/E of 14.3: less than the above-stated 17.8. MS LSPF is 19.9% less than the default $13.28/share * 17.8 = $236.38, which results in more conservative zoning. MS LSPF is still 3.3% greater than mine.

My TAR (over 15.0% preferred) is much less than the 16.1% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.7 and 3.5 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.7. Kim Butcher’s “quick and dirty DCF” prices the stock at 16.0 * [$24.20 – ($3.00 + $4.20)] = $272.00, which suggests the stock to be 10.5% undervalued.

LFUS is a BUY under $225. With a forecast high price at $350.80, TAR should meet my 15% criterion around $175/share.

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AL Stock Study (10-16-23)

Posted by on December 27, 2023 at 06:41 | Last modified: October 16, 2023 13:35

I recently did a stock study on Air Lease Corp. (AL) with a closing price of $35.74. Previous studies are here and here.

M* writes:

     > Air Lease Corp is an aircraft leasing company based in the
     > United States. However, it derives its revenue from the Asia
     > region. Its business involves purchasing aircraft from
     > renowned manufacturers such as The Boeing Company
     > (Boeing) and Airbus S.A.S and leasing them to airline
     > companies across the world. Its suite of aircraft entails
     > single-aisle narrow-bodied jets and twin-aisle wide-bodied
     > aircraft. The company’s primary source of revenue
     > originates from the leasing of aircraft and to a
     > certain extent from the provision of fleet management
     > services to investors and owners of aircraft portfolios.

Over the past decade, this medium-size company has grown sales 11.1% per year. Earnings have grown 11.3% per year from ’13-’21. I am excluding the 2022 GAAP loss of $1.24/share due to aircraft in Russia. From the 2022 10-K:

     > In response to the sanctions, in March 2022 we terminated
     > all of our leasing activities in Russia, consisting of 24
     > aircraft in our owned fleet, eight aircraft in our managed
     > fleet and the leasing activity relating to 29 aircraft that
     > that had not yet delivered from our orderbook, all of which
     > have been subsequently placed. In the first quarter of
     > 2022, we also canceled five aircraft in our orderbook that
     > were slated for delivery in Russia.
     >
     > While we or the respective managed platform maintain title
     > to the aircraft, we determined that it is unlikely we or
     > they will regain possession of the aircraft that are
     > detained in Russia. As a result, we recorded a write-off of
     > our interests in our owned and managed aircraft that are
     > detained in Russia, totaling approximately $802.4 million
     > for the three months ended March 31, 2022. The 21 aircraft
     > that remained in Russia were removed from our fleet as of
     > March 31, 2022.

Excluding ’22, sales are up and mostly straight while earnings peak in ’19 (excluding ’17 when EPS spikes ~100% due to TCJA). PTPM is higher than peer and industry averages by increasing from 34.2% in ’13 to 40.9% in ’16 before heading down to 25.9% in ’21 for a last-5-year mean (excluding ’22) of 33.2%.

ROE is slightly better than peer averages and mostly lower than the industry in going from 7.5% in ’13 to 11.4% in ’18 (’17 excluded due to TCJA) before falling to 6.2% in ’21 for a last-5-year mean (excluding ’22) of 9.1%. This is slightly better than peer averages and mostly less than than the industry.

Debt-to-Capital averages 71.8% over the last five years, which is less than than peer and industry averages but still uncomfortably high. M* lists Interest Coverage as 13.0 and Quick Ratio as 0.37. FCF has been negative since at least ’20.

Despite the red flags, M Ramirez writes in this SA article:

     > The main negative point for the market is that Air Lease is
     > a finance company and as such needs a lot of debt to operate
     > on a large scale with the assets it holds. Leverage is
     > currently high (about 2.5 debt/equity), although in no case
     > is the amount of debt greater than the total value of the
     > company’s assets… although a priori the debt seems exorbitant,
     > the company finances more than 95% of the debt at a fixed rate
     > (…close to 3%), which, together with the high predictability
     > of its cash flows, makes it practically impossible for the
     > company to go bankrupt. The company could stop aircraft
     > purchases for 5 years and with the cash flows repay half of
     > the debt without increasing rents to the lessees.

With regard to sales growth:

I am forecasting below the range at 11.0% per year.

With regard to EPS growth:

Three of four long-term estimates are 9.8% with the fourth extremely high. I am disregarding the latter in case it was calculated off a negative base and forecasting below the former at 7.0%. Sans write-off (discussed above), I calculate ’22 earnings at $5.67/share rather than -$1.24. This results in high EPS of $7.95/share.

My Forecast High P/E is 9.0. From ’13-’21, high P/E ranges from 7.2 in ’17 to 18.6 in ’13 with a last-5-year mean of 11.7. The last-5-year-mean average P/E is 9.5. I am forecasting near the bottom of the range (only ’17 is lower).

My Forecast Low P/E is 5.5. From ’13-’21, low P/E ranges from 5.0 in ’17 (1.9 in ’20 excluded due to COVID-19) to 14.6 in ’14 with a last-5-year mean of 7.4 . I am forecasting near the bottom of the range (only ’17 is lower).

My Low Stock Price Forecast (LSPF) of $24.80 is default based on $4.50/share initial value. This is 30.6% less than the previous close and 18.2% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 4.8% in ’17 to 18.6% in ’21 with a last-5-year mean of 13.1% (2022 NMF excluded). I am forecasting conservatively at 5.0%.

These inputs land AL in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 15.4%.

PAR (using Forecast Average—not High—P/E) of 10.7% 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 on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 185 studies over the past 90 days (my study and 72 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.6%, 11.9%, 11.0, 6.0, and 9.0%, respectively. I am lower across the board.

MS high/low EPS is $7.53/$4.20 vs. my $7.93/$5.67 (per share). My high EPS is higher due to the higher initial value. As evidenced by MS mean EPS growth of 39.0%,others have also dealt with significant confusion in figuring out how to deal with negative EPS in ’22. This somewhat obscures my ability to determine MOS because MS data are highly scattered.

MS LSPF of $27.70 implies a Forecast Low P/E of 6.6 vs. the above-stated 6.0. MS LSPF is 9.9% greater than the default value of $4.20/share * 6.0 = $25.20, which results in more aggressive zoning. MS LSPF is also 11.7% greater than mine.

My TAR (over 15.0% preferred) is less than MS 17.5%. Despite a higher EPS range, MOS seems robust in the current study.

I track a few different valuation metrics. PEG is 0.8 and 1.4 per Zacks and my projected P/E, respectively: both quite reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is also reasonable at 0.9. For once, these metrics are in relative agreement with each other.

AL is a BUY under $36. With a forecast high price at $71.30, TAR should meet my 15% criterion right about now.

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DORM Stock Study (9-27-23)

Posted by on December 26, 2023 at 06:43 | Last modified: September 27, 2023 11:37

I recently did a stock study on Dorman Products Inc. (DORM) with a closing price of $73.66.

M* writes:

     > Dorman Products Inc is a supplier of original equipment parts
     > for automobiles. The company produces automotive and heavy-
     > duty replacement parts, automotive hardware, brake parts, and
     > fasteners for the automotive and heavy-duty aftermarket. The
     > products are sold under the Dorman brand and its sub-brands
     > OE Solutions, Help!, Conduct-Tite, and HD Solutions through
     > aftermarket retailers, regional and local warehouse
     > distributors, specialty markets, and salvage yards. It
     > operates as a single reportable operating segment, namely,
     > the sale of replacement and upgrades parts in the motor
     > vehicle aftermarket industry, serving passenger cars, light-,
     > medium-,and heavy-duty trucks as well as specialty vehicles.
     > The company operates primarily in the United States.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.4% and 5.8%, respectively. Lines are up, somewhat straight, and [I stretch to say] parallel. Admittedly, visual inspection is not great due to EPS declines in ’19 (big) and ’22 making growth look inconsistent [’23 looks to be challenging as well: see below]. PTPM leads peer and industry averages despite falling from 19.2% (’13) to 9.0% (’22) with a last-5-year mean of 12.5%.

Also over the past decade, ROE is roughly even with the industry and higher than peer averages while falling from 20.8% (’13) to 11.9% (’22) with a last-5-year mean of 13.7%. Debt-to-Capital is less than peer and industry averages despite increasing from 0% (through ’18) to 44.4% in ’22 with a last-5-year mean of 15.2%.

Interest Coverage is 4.0 and Quick Ratio is 0.9. Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the long-term estimate at 6.0% per year.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of three: 14.1%) at 10.0% per year.

Determining the initial value is a bit more complex. 2023 EPS are tracking much lower than ’22 for the first six months. According to the 10-Q:

     > The increase in SG&A as a percentage of net sales was
     > primarily due to the impact of higher interest rates on
     > our customer accounts receivable factoring programs and
     > the addition of SuperATV, which has higher SG&A expenses
     > as a percentage of net sales than the Company average.
     > SG&A expenses as a percentage of net sales also increased
     > in the three months ended April 1, 2023 as a result of a
     > charge recorded related to a customer bankruptcy filing.

The bankruptcy filing is a nonrecurring event. SuperATV (recent takeover target) seems recurring. I don’t know if “factoring programs” are ongoing or nonrecurring and I don’t know how much of each contributes to the total difference.

Given the uncertainty, I feel the need to use the depressed EPS for initial value in an effort to be conservative. I do find it odd that no short- or long-term EPS projections are negative when 2023 Q1 and Q2 are tracking significantly below ’22 values. Nevertheless, I will use 2023 Q2 EPS of $2.76/share (annualized) as the initial value rather than ’22 EPS of $3.85.

My Forecast High P/E is 24.0. Over the past decade, high P/E ranges from 20.7 in ’15 to 38.0 in ’19 with a last-5-year mean of 30.4. The last-5-year-mean average P/E is 24.7. I am forecasting below the latter [only ’15 (20.7) and ’18 (22.7) are lower].

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 13.1 in ’16 to 26.3 in ’19 with a last-5-year mean of 19.0. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is $58.00. The default LSPF of $35.90 is 51.3% less than the previous close and 51.0% less than the 52-week low. I find this unreasonable. With the stock currently at the 52-week low, I am discounting 21.3% to get my LSPF. This implies a Forecast Low P/E of 58 / 2.76 = 21.0.

These inputs land DORM in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 7.7%.

PAR (using Forecast Average—not High—P/E) of 2.2% 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 only 32 studies (my study and 8 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 8.7%, 10.6%, 25.8, and 16.6, respectively. I am lower across the board [except perhaps for my implied Forecast Low P/E that has been effectively raised by overriding LSPF; I’ll see below whether MS has done the same]. Value Line’s projected average annual P/E of 20.0 is lower than MS (21.2) and mine (18.5).

MS high / low EPS are $5.50 / $2.78 vs. my $4.44 / $2.76 (per share). My EPS range is lower and my low EPS is lower. Value Line has high EPS at $8.85/share: much higher than both.

MS LSPF of $53.60 implies a Forecast Low P/E of 19.3, which is greater than the above-stated 16.6 [not nearly as big a difference as my implied Forecast Low P/E]. MS LSPF is 16.2% greater than the default $2.78/share * 16.6 = $46.15, which results in more aggressive zoning. MS LSPF is more conservative than mine, however, being 7.6% less.

My TAR (over 15.0% preferred) is much less than the 12.1% from MS.

Despite raising LSPF to something that seems reasonable at the moment, MOS seems robust in this study. My final buy/sell decisions are based more on TAR/PAR than they are upside/downside ratio. While the latter will qualify a potential BUY, I use the former to finalize it.

I track a few different [usually conflicting] valuation metrics. PEG of 2.4 based on my projected P/E suggests the stock to be overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* agrees at 1.1. Kim Butcher’s “quick and dirty DCF” prices the stock at 16.0 * [$11.40 – ($0.00 + $1.30)] = $161.60, which suggests the stock to be 54.4% undervalued [this strikes me as NMF as I continue to evaluate the utility of this metric].

DORM is a BUY under $70. With a forecast high price at $106.60, TAR should meet my 15% criterion around $53/share.

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NAPA Stock Study (10-10-23)

Posted by on December 23, 2023 at 06:14 | Last modified: October 10, 2023 10:53

I recently did a stock study on Duckhorn Portfolio Inc. (NAPA) with a closing price of $9.87. The original study is here.

Value Line writes:

     > The Duckhorn Portfolio, Inc. produces and sells wines in North America.
     > It offers wines under a portfolio of brands, including Duckhorn
     > Vineyards, Decoy, Goldeneye, Paraduxx, Migration, Canvasback, Calera,
     > Kosta Browne, Greenwing, and Postmark. The company sells wines to
     > distributors, and directly to retail accounts and consumers. The
     > company was formerly known as Mallard Intermediate, Inc. and changed
     > its name to The Duckhorn Portfolio, Inc. in February 2021. The Duckhorn
     > Portfolio, Inc. was founded in 1976 and is headquartered in Saint
     > Helena, California. The Duckhorn Portfolio, Inc. operates as a
     > subsidiary of Mallard Holding Company, Llc.

This small-size company went public in 2021 and has financials available since 2019. Over that time, Duckhorn has grown sales and EPS at 14.4% and 33.4% per year, respectively. Lines are mostly up, straight, and parallel.

Over the past five years, PTPM leads (trails) peer (industry) averages while increasing from 12.4% (’19) to 23.4% (’23) with a last-5-year mean of 19.3%. Debt-to-Capital is down from 40.1% (’19) to 21.2% (’23) with a last-5-year mean of 28.8%.

ROE is lower than industry averages and about even with peers with a last-3-year mean of 7.3%.

Current Ratio is 5.2, Quick Ratio is 0.7, and Interest Coverage is 9.1. Value Line assigns a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting conservatively below the range at 4.0% per year.

With regard to EPS growth:

I am forecasting conservatively below the long-term-estimate range (mean of five: 7.3%) at 5.0% per year and using 2023 EPS of $0.60/share as the initial value.

My Forecast High P/E is 30.0. High P/E over the last three years (only data available) is 47.2, 48.6, and 32.3 (mean 42.7). The last-3-year-mean average P/E is 35.5. I am forecasting below the range.

My Forecast Low P/E is 12.0. Low P/E over the last three years (only data available) is 31.1, 33.1, and 20.7 (mean 28.3). I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $7.20 is default based on $0.60/share initial value. This is 27.1% less than the previous close and 22.6% less than the 52-week low.

These inputs land NAPA in the BUY zone with a U/D ratio of 4.9. Total Annualized Return (TAR) is 18.5%.

PAR (using Forecast Average—not High—P/E) of 10.4% 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 three studies (my study 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 8.0%, 7.0%, 41.7, and 23.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 25.0 is lower than MS (32.4) and higher than mine (21.0).

MS high / low EPS are $0.76 / $0.50 versus my $0.77 / $0.60 (per share). My range is probably higher due to a higher initial value (the recently-released 2023 EPS). Value Line’s high EPS is $0.85: highest of the three.

MS LSPF of $11.70 (invalid on today’s date) implies a Forecast Low P/E of 23.4: greater than the above-stated 23.0. MS LSPF is 1.7% greater than the default $0.50/share * 23.0 = $11.50, which is also invalid on today’s date. MS LSPF is 62.5% greater than mine. The small sample size is not helping MS here as one study with questionable judgment (e.g. about one week ago) can substantially affect the average.

My TAR (over 15.0% preferred) is less than the 19.7% from MS. While I cannot use MS as a valid comparison due to the tiny sample size, I think MOS seems robust in the current study. My growth rates are less than analyst estimates and my P/E range is lower than brief history.

I track a few different [usually conflicting] valuation metrics. PEG is 2.0 and 3.1 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very low at 0.5.

NAPA is a BUY under $11 and TAR meets my 15% criterion right now. The stock is down nearly 25% since July (also explains MS LSPF), but fundamentals don’t seem affected. The biggest knock against this company may be its short data history.

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