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ETSY Stock Study (6-16-23)

Posted by on June 26, 2023 at 07:00 | Last modified: June 18, 2023 09:47

I recently did a stock study on Etsy, Inc. (ETSY) with a closing price of $95.97.

M* writes:

     > Etsy operates a top-10 e-commerce marketplace operator in the U.S.
     > and the U.K., with sizable operations in Germany, France, Australia,
     > and Canada. The firm dominates an interesting niche, connecting
     > buyers and sellers through its online market to exchange vintage
     > and craft goods. With $13.3 billion in 2022 consolidated gross
     > merchandise volume, the firm has cemented itself as one of the
     > largest players in a quickly growing space, generating revenue
     > from listing fees, commissions on sold items, advertising services,
     > payment processing, and shipping labels. As of the end of 2022, the
     > firm connected more than 95 million buyers and 7.5 million sellers
     > on its marketplace properties: Etsy, Reverb (musical equipment),
     > Elo7 (crafts in Brazil), and Depop (clothing resale).

This medium-size company has grown sales at an annualized rate of 40.8% over the past decade.

EPS are a bit more complicated. 2015 was the first year as a publicly-traded company. I am excluding ’13-’16 of negative/fractional EPS [otherwise resulting in an inflated growth rate] to start with $0.68/share in ’17. The company took a goodwill impairment charge of $1.0 billion in ’22 due to acquisitions Depop and Elo7. Per CFRA, this reduced EPS to -$5.48 from $4.61, which would preclude future growth rate projections. I am therefore excluding ’22 from the analysis to give a 60.0% p.a. growth rate since ’17. For ’17-’22, [sales and EPS] lines are mostly up and narrowing despite an EPS dip in ’18.

PTPM is above the industry but below peer averages while increasing from 7.3% in ’17 to 20.3% in ’21 with a last-5-year mean (excluding ’22) of 15.1%. ROE is above peer and industry averages while increasing from 23.8% in ’17 to 80.9% in ’22 with a last-5-year mean (excluding ’22) of 43.3%.

Debt-to-Capital has been above peer and industry averages since ’19 with a last-5-year mean of 76.5%. While this exceeds 100% in ’22, Value Line (giving a B+ rating for Financial Strength) is not concerned:

     > Although debt represented over 100% of capital at the end of 2022,
     > cash and short-term investments totaled $1.2 billion and the
     > company has only modest debt due over the next five years.
     > Additional funds can be sourced from the company’s $200 million
     > undrawn revolver and $29.1 million in long-term investments that
     > can be liquidated on short notice.

M* gives a Standard rating for Capital Allocation and is not concerned about debt either:

     > With our forecast for just 0.8 times average net leverage over
     > the next five years (net debt/adjusted EBITDA), a paucity of
     > near-term debt maturities, and a highly cash generative model…
     > balance sheet risk appears minimal for the marketplace operator.
     > We believe that Etsy should encounter no difficulties in funding
     > its investments in headcount and platform development with
     > internally generated funds, while retaining substantial
     > flexibility to invest in brand marketing and strategic
     > acquisitions. With no principal maturities until 2026, we view
     > Etsy’s balance sheet health as strong, despite the firm carrying
     > $2.3 billion in gross Etsy’s balance sheet debt as of the end of
     > the first quarter of 2023.

Quick Ratio is 2.5 and—nota bene—M* rates the company Wide for Economic Moat.

With regard to sales growth:

I am forecasting below the range at 7.0%.

With regard to EPS growth:

How YF comes up with 144% for ’23 with ’22 being a negative number is [unknown to me and] a moot point.

I am forecasting below the long-term-estimate range (mean of six: 12.8%) at 7.0%. My initial value of $3.40/share (’21 EPS) results in a calculated high EPS of $4.77. Using a -1.2% growth rate projected from ’22 trendline ($5.07) results in the same.

My Forecast High P/E is 35.0. High P/E has ranged from 32.1 in ’17 to 96.5 in ’19 with a last-5-year mean (’22 is NMF) of 89.1. The last-5-year-mean average P/E is 61.6. I am forecasting below the latter [and at the top of my comfort zone].

My Forecast Low P/E is 20.0. Low P/E has ranged from 13.8 in ’17 to 52.3 in ’19 with a last-5-year mean (’22 is NMF) of 34.0. The 5-year median is 27.4 (from ’18). I am forecasting toward the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default of $68.00 based on the $3.40/share initial value. This is 29.1% less than the previous closing price and 1.5% above the 52-week low.

These inputs land ETSY in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) is 5.3%, which 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 72 studies over the past 90 days (my study and 14 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 16.3%, 15.0%, 50.0, and 25.6, respectively. I am lower on three and unable to compare EPS growth due to my initial value workaround. Value Line projects an average annual P/E of 35.0, which is lower than MS (37.8) and much higher than mine (27.5).

MS high and low EPS are $9.93/share and -$1.36/share versus my $4.77 and $3.40. MS data is—well, quite the mess! Over half the studies have low EPS below -$5.00/share. I would argue inclusion of a large one-time charge resulting in negative ’22 EPS to be unreasonable. Furthermore, some EPS growth rates above 400% per year are not filtered as outliers because the sample variance is so high. With a larger sample size, I might be able to manually exclude more studies in an effort to find more representative averages.

With outliers excluded, MS LSPF is $12.50 mean and $60.00 median. Here too, the hugely variant data and small sample size render MS unsuitable for comparison. This stems from the previous paragraph because the default equation, which most people will probably use, calculates LSPF based on those widely scattered low EPS numbers.

I consider ETSY a relatively cut-and-dried case: excluding ’22 (thereby nullifying ’22 growth) or normalizing ’22 by adding back the one-time charge (thereby including ’22 growth) would go a long way toward tidying up the MS dataset.

PEG ratio is another value check that I have recently begun to monitor. Zacks gives 40.8 / 7.1 ~ 5.8 compared to the generally accepted 1.0 – 1.5 upper limit. I’m not sure what EPS Zacks is using to get 40.8, but according to PEG the stock still looks quite expensive. In my early period tracking this metric, I have not seen many stocks below the 1.5 threshold. Granted we are now in a bull market, but I remain uncertain how useful PEG will be.

I feel like MOS is robust in this study based on my process of selecting conservative inputs at every turn relative to ranges and analyst estimates. I would look to re-evaluate the stock under $89/share.

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STM Stock Study (5-22-23)

Posted by on June 23, 2023 at 06:55 | Last modified: May 21, 2023 18:26

I recently did a stock study on STMicroelectronics N.V. (STM) with a closing price of $45.04.

Value Line writes:

     > STMicroelectronics N.V. is a large multinational firm that designs,
     > develops, and manufactures semiconductors. Active markets include
     > telecom, networking, autos, industrial products, and consumer
     > devices. Offers thousands of products to over 100,000 customers.

This large-size company has grown sales and earnings at annualized rates of 8.3% and 29.6% over the last 9 and 5 years, respectively [’13-’16 EPS excluded due to negative and/or small fractional values that otherwise artificially inflate the growth rate]. Lines are generally up, straight, and narrowing except for EPS dip in ’19. PTPM has trailed peer and industry averages despite increasing from 1.4% in ’14 to 27.8% in ’22 with a last-5-year average of 17.1%.

ROE has also trailed peer and industry averages despite rallying from 2.3% in ’14 to 34.7% in ’22 with a last-5-year average of 21.7%. Debt-to-Capital has been lower than peer and industry averages, falling from 26.5% in ’14 to 18.7% in ’22 with a last-5-year average of 22.6%. Interest coverage is an eye-popping 231 and quick ratio is 1.76. Value Line rates the company B++ for Financial Strength while M* assigns a Standard rating for Capital Allocation.

I forecast long-term sales growth of 5% based on the following:

I am forecasting less than the long-term estimate.

I forecast long-term annualized EPS growth of 3% based on the following:

I am forecasting conservatively toward the bottom of the long-term-estimate range (mean of six: 6.1%). I am also projecting from the ’22 EPS of $4.19/share rather than the Q1 ’23 (annualized) EPS of $4.50.

My Forecast High P/E is 16. High P/E has fallen from 71.4 in ’14 to 12.3 in ’22 with a last-5-year average of 22.9 (last-5-year-average average P/E is 16.9). With contraction being projected in ’23-’24, I am forecasting toward the lower end of the range (only ’22 is less) while also expecting a future rebound from the current level (10.0).

My Forecast Low P/E is 7. Low P/E has fallen from 44.8 in ’14 to 6.8 in ’22 with a last-5-year average of 10.8. I am forecasting toward the bottom of the range (only ’22 is less).

My Low Stock Price Forecast (LSPF) is the default [using $4.19/share] value of $29.30. This is 34.9% less than the previous close and 3.2% greater than the 52-week low.

Except for 2019, Payout Ratio has decreased every year since ’15. The last-5-year average is 13.9% and the lowest was 5.7% in ’22. I am forecasting conservatively below the range at 5.0%.

These inputs land STM in the HOLD zone with an U/D ratio of 2.1. Total Annualized Return (TAR) is 11.8%.

PAR (using Forecast Average—not High—P/E) is only 4.8%, which is less than I seek for a large 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 34 studies done in the past 90 days (my study and 13 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 6.0%, 4.1%, 19.4, 10.5, and 13.9%. I am lower across the board. Value Line’s future average annual P/E of 16.0 is higher than both MS (15.0) and mine (11.5).

With regard to other data, MS high and low EPS are $5.12/share and $3.93/share in contrast to my $4.86 and $4.19. My high EPS is lower due to forecast growth rate. MS LSPF of $33.00 implies a Forecast Low P/E of 8.4 (versus the above-stated 10.5), is 25.0% greater than mine, and is 20.0% lower than the $3.93 * 10.5 = $41.27 default. MOS seems robust in this study.

STM is a BUY under $41, but I will look to re-evaluate under $39/share because I want projected return closer to 15.0%.

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FWRD Stock Study (5-18-23)

Posted by on June 21, 2023 at 07:18 | Last modified: May 18, 2023 10:27

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $97.00. My original study is here.

M* writes:

     > Forward Air Corp is an asset-light freight and logistics company. The
     > company’s operating segment includes Expedited Freight and Intermodal.
     > It generates maximum revenue from the Expedited Freight segment.
     > Expedited Freight segment operates a comprehensive national network
     > to provide expedited regional, inter-regional and national LTL
     > (less-than-truckload) services. It also offers customers local
     > pick-up and delivery and other services including final mile,
     > truckload, shipment consolidation and deconsolidation, warehousing,
     > customs brokerage, and other handling.

This medium-size company has grown sales and earnings at annualized rates of 11.5% and 14.9% over the last 10 years, respectively. This excludes sharp EPS dips in ’16 and ’20 [see second-to-last paragraph]. Lines are mostly up and parallel except for sales decline in ’20 and, in addition to the dips just mentioned, EPS dips in ’15 and ’19. PTPM has led peer and industry averages over the last 10 years, ranging from 5.5% (’20) to 13.2% (’22) with a last-5-year average of 9.1%.

ROE has trailed peer and industry averages despite trending higher over the past decade from 12.9% in ’13 to 27.8% in ’22 with a last-5-year average of 17.8%. Debt-to-Capital has been lower than peer and industry averages, going from 0% in ’13 to 28.2% in ’22 with a last-5-year average of 26.0%.

Despite Interest Coverage of 38.6 and Quick Ratio at 1.41, Value Line rates the company B++ for Financial Strength.

I forecast flat long-term sales growth based on the following:

I am forecasting in line with the only long-term estimate.

I forecast long-term annualized EPS growth of 2% based on the following:

I am forecasting conservatively toward the bottom of the long-term-estimate range (mean of four: 6.8%).

My Forecast High P/E is 19. High P/E has gone up and down from 25.2 in ’13 to 17.6 in ’22 with a last-5-year average of 27.1. Only the ’22 value is lower than my forecast.

My Forecast Low P/E is 11. Low P/E has gone up and down from 19.9 in ’13 to 11.8 in ’22 with a last-5-year average of 16.7. I am forecasting conservatively below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $76.30. This is 21.3% less than the previous close and 9.2% less than the 52-week low.

Over the last 10 years, the lowest Payout Ratio was 13.4% in ’22 and the last-5-year average is 23.4%. I am conservatively forecasting at 13.0%.

These inputs land FWRD in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 9.1%.

PAR (using Forecast Average—not High—P/E) is 4.3%, which 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 78 studies done in the past 90 days (my study and 24 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.8%, 9.5%, 23.0, 16.8, and 24.9%. I am lower across the board. Value Line’s future average annual P/E of 23.0 is higher than both MS (19.9) and mine (15.0).

With regard to other data, MS high and low EPS are $11.03/share and $3.36/share in contrast to my $7.66 and $6.94. My high EPS is lower due to forecast growth rate. MS low EPS seems unreasonable, though. 12 of 78 MS studies are under $2.00/share. I believe some based this on the ’20 downside outlier of $1.89/share. MS LSPF of $68.80 is 9.8% less than mine, implies a Forecast Low P/E of 20.5 (versus the above-stated 16.8), and is 21.9% greater than the $3.36 * 16.8 = $56.45 default. The latter, especially, suggests either very aggressive zoning or some sort of confusion [perhaps around low EPS].

With a robust MOS behind this study, shares are a BUY under $93. Because I want projected return closer to 15.0%, I will look to re-evaluate this stock under $87/share.

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CVCO Stock Study (6-8-23)

Posted by on June 20, 2023 at 06:48 | Last modified: June 8, 2023 11:46

I recently did a stock study on Cavco Industries Inc. (CVCO) with a closing price of $288.54.

M* writes:

     > Cavco Industries Inc. designs and produces factory-built homes under
     > the Cavco Homes, Fleetwood Homes, and Palm Harbor Homes brands.
     > It also produces modular homes, park model homes, and vacation
     > cabins, as well as commercial structures, among others. The company
     > operates principally in two segments: Factory-built housing, which
     > includes wholesale and retail systems-built housing operations and
     > financial services, which includes manufactured housing consumer
     > finance and insurance. Cavco received most of its revenues from
     > the Factory-built housing segment.

Over the last decade, this medium-size company has grown sales and earnings at annualized rates of 13.4% and 34.9%, respectively. The latter includes a 158% YOY spike in ’21—much of which is due to acquisition of The Commodore Corp [I did not realize this when doing the original SSG in March 2023; it gives me more confidence in the sustainability of earnings]. Lines are up, mostly straight, and parallel. PTPM has trailed industry averages but leads peers while increasing from 5.2% in ’13 to 14.3% in ’22 with a last-5-year mean of 10.8%.

Over the last decade, ROE has increased from 6.0% in ’13 to 24.5% in ’22 with a last-5-year mean of 17.2. This trails peer and industry averages until ’21 when the latter two turn negative. Debt-to-Capital has been far below peer and industry averages, declining from 19.4% in ’13 to 2.2% in ’22 with a last-5-year mean of 3.9%. Interest Coverage is 338, Quick Ratio is 1.49, and the company gets a B+ Financial Strength rating from Value Line.

With regard to sales growth:

These short-term projections are not very helpful for a long-term forecast with ’23 expected to be down. Instead, I am slashing the historical growth rate in half and using 6.0% to be conservative.

With regard to EPS growth:

Two long-term estimates [Value Line report is a stub] are not much to go on [CNN Business gives a 404 error at the time of this report]. Neither can I find any corporate guidance published [which would probably be factored into analyst estimates anyway]. I am forecasting 50% below the low estimate at 11.0%. This is roughly one-third of the historical EPS growth rate, which seems conservative enough for me.

My Forecast High P/E is 15.5. Over the last decade, high P/E has trended down from 43.7 (’13) to 11.8 (’22) with a last-5-year mean of 24.0. The last-5-year-mean average P/E is 17.6. I am forecasting below the latter. Only ’22 and ’21 (15.3) are lower.

My Forecast Low P/E is 6.5. Over the last decade, low P/E has trended down from 20.8 (’13) to 6.7 (’22) with a last-5-year mean of 11.3. I am projecting conservatively below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $175.00. This is 39.3% less than the previous closing price and 2.5% less than the 52-week low.

These inputs land CVCO in the BUY zone with a U/D ratio of 3.7. Total Annualized Return (TAR) is 19.5%.

PAR (using Forecast Average—not High—P/E) is 11.6%, which is decent for a company of this size. If a robust 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 53 studies over the past 90 days (21 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 11.8%, 9.8%, 23.1, and 13.2, respectively. I am lower on all but EPS growth. Per Value Line, my forecast average P/E (11.0 vs. MS 17.7) is lower than each of the last 10 years except for ’22 (8.9).

MS high and low EPS are $38.30/share and $19.77/share compared to my $45.41 and $26.93. 14 of the studies have low EPS under $9.00, which suggests these studies used pre-acquisition data (no longer relevant). My high EPS is higher due to a higher EPS growth rate and because of a higher initial value (post-acquisition data).

MS LSPF of $179.50 is only 2.6% greater than mine: very much in the neighborhood. That does imply an MS low P/E of 9.1, however, in contrast to the above-stated 13.2. It’s also 31.2% below the $19.77 * 13.2 = $260.96 default value. At least this disconnect makes for a lower-risk bias [pulling the BUY zone lower].

Overall, I feel the current study has a robust MOS. The BUY zone extends to $307/share vs. MS $358.

The only thing that gives me pause is the stock being so close to its 52-week high. Depending on personal preference, I could opt to buy now or wait for an arbitrary pullback (e.g. 5%). The risk of waiting is that I may never get it, but that’s one benefit of doing several other stock studies!

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Agilent Stock Study (5-17-23)

Posted by on June 19, 2023 at 07:07 | Last modified: May 17, 2023 13:50

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $126.29. The first study is here.

M* writes:

     > Originally spun out of Hewlett-Packard in 1999, Agilent
     > has evolved into a leading life sciences and diagnostics
     > firm. Today, Agilent’s measurement technologies serve a
     > broad base of customers with its three operating segments:
     > life science and applied tools, cross lab (consisting of
     > consumables and services related to its life science and
     > applied tools), and diagnostics and genomics. Over half
     > of its sales are generated from the biopharmaceutical,
     > chemical, and advanced materials end markets, but it
     > also supports clinical lab, environmental, forensics,
     > food, academic, and government-related organizations.

Since 2015, this medium-size company has grown sales and earnings at annualized rates of 7.8% and 19.3%, respectively. Lines are mostly up and straight except for EPS declines in ’18 and ’20. PTPM has led peer and industry averages, trending higher from 11.9% in ’15 to 22.0% in ’22 with a last-5-year average of 19.3%.

ROE has been roughly even with peer and industry averages in climbing from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%.

Over the last decade, Debt-to-Capital has been less than peers and the industry with a last-5-year average of 32.5%. Interest Coverage is 19.1 and Quick Ratio is 1.4. Value Line rates Agilent an A for Financial Strength and M* rates them Exemplary for Capital Allocation.

I forecast long-term annualized sales growth of 5% based on the following:

I am forecasting at the bottom of the long-term range.

I forecast long-term annualized EPS growth of 9% based on the following:

I am forecasting at the low end of the long-term estimate range [mean of six: 12.0%]. To be conservative, I am projecting from the ’22 EPS of $4.18/share rather than Q1 ’23 EPS (annualized) of $4.43/share.

My Forecast High P/E is 31. Since ’15, high P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 39.1. I am forecasting less than all values except ’19 and also less than the last-5-year-average average P/E of 31.8.

My Forecast Low P/E is 23. Since ’15, low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 24.5. I am forecasting less than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast (LSPF) is the default [based on $4.18 EPS] value of $96.10. This is 23.9% less than the previous closing price and 7.0% less than the ’21 low.

Since ’15, Payout Ratio has ranged from 19.5% (’19) to 61.4% (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 22.6%. I am forecasting to the low side [at 19%] even though Value Line says positive things about the company’s ability to raise the dividend.

These inputs land Agilent in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.2%.

PAR (using Forecast Average—not High—P/E) is 7.3%, which 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 34 studies done in the past 90 days (9 outliers plus my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 6.3%, 9.0%, 33.6, 24.8, and 29.1%. I am lower on four of five inputs and equal on EPS growth. Value Line’s future average annual P/E of 25.0 is lower than both MS (29.2) and mine (27.0).

With regard to other data, MS high and low EPS are $6.82/share and $4.30/share in contrast to my $6.43 and $4.18. Although my numbers are a tad lower, I don’t perceive significant MOS in this study. MS LSPF of $101.00 implies a Forecast Low P/E of 23.5 (versus the above-stated 24.8), is 5.3% less than the $4.30 * 24.8 = $106.64 default, and is 5.1% greater than mine.

Shares are a BUY under $121, but I want projected return closer to 15.0% and PAR doesn’t get me there right now.

I will look to re-evaluate this stock under $115/share.

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CMCSA Stock Study (6-5-23)

Posted by on June 16, 2023 at 06:41 | Last modified: June 5, 2023 12:05

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $39.19.

Value Line writes:

     > Comcast Corp. is a global media and telecommunications company.
     > Its Cable Communications segment (54% of adjusted ’21 revenues)
     > provides high-speed Internet, pay-TV, and voice services across
     > major U.S. markets under the Xfinity brand. NBCUniversal
     > includes: broadcast, cable, and streaming networks (NBC, Bravo,
     > USA, Peacock); TV/film studios (Universal Pictures,
     > DreamWorks); and theme parks (Universal Studios). Acquired
     > European pay-TV provider SKY plc.

Over the last decade, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.6% and 4.6% per year, respectively. Sales are up and straight. EPS is generally up and straight with an upward spike in ’17 (possibly related to TCJA) and YOY declines in ’18, ’20, and ’22.

I will move to exclude 2022 earnings. As part of its annual impairment assessment, the company wrote down a loss of $8.6B to reflect an increased discount rate and reduced estimated future cash flows due to macroeconomics in [acquisition target] Sky’s territories. It also recorded loss due to its investment in Atairos: a strategic company Comcast established in 2016 focused on investing in and operating companies across a range of industries and sectors. This resulted in a ’22 loss of $2.23B.

Excluding ’22, CMCSA has grown EPS at an annualized rate of 10.5% over the last 10 years.

Over the same time horizon (again excluding ’22), PTPM has ranged from 13.6% (’20) to 18.1% (’14 and ’17) with a last-5-year mean of 15.4%. This leads peer and industry averages but is trending slightly down.

Historical ROE has been in the low-to-mid teens since ’13 (excluding 39.8% outlier in ’17). The last-5-year mean is 14.8% (again excluding ’22): less than peer and industry averages. Debt-to-Capital over the last five years has averaged 54.7%, which is less than peer and industry averages.

Although Interest Coverage and Quick Ratio are only 4.9 (mean of M* and Value Line) and 0.64, respectively, M* gives a Standard rating for Capital Allocation: “we believe the firm’s balance sheet is sound and that shareholder returns are generally appropriate.” Value Line gives an A+ for Financial Strength, and M* categorizes the company with a Wide economic moat.

With regard to sales growth:

I forecast long-term sales growth of 1.0%.

With regard to EPS growth:

I am forecasting at the bottom of the long-term estimate range (mean of six: 10.6%). Last quarter, I was puzzled by the CNN Business long-term estimate of -5.6%. That may have been an error as it now shows +13.0%.

I will use ’21 EPS of $3.04/share as the initial value thereby discounting any growth occurring in ’22 (sans write-down for Sky). This is the same as projecting from the ’22 trendline ($3.35/share) with a 4.9% growth rate.

My Forecast High P/E is 16.0. Over the last decade, high P/E has ranged from 16.7 (’19) to 23.0 (’20) with a last-5-year mean of 19.4 (’17 and ’22 excluded due to downside and upside outliers of 8.9 and 43.1, respectively). I am forecasting below the range and below the last 5-year-mean average P/E of 16.3.

My Forecast Low P/E is 9.0. Over the last decade, low P/E has ranged from 11.8 (’19) to 15.4 (’20) with a last-5-year mean of 13.2 (’17 and ’22 excluded due to downside and upside outliers of 7.2 and 23.5). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $27.40 (based on initial EPS of $3.04/share). This is 30.1% less than the previous closing price and 3.5% less than the 52-week low.

Over the last decade, Payout Ratio has ranged from 13.3% (’17) to 89.3% (’22). Excluding those two outliers, the range is 28.1% – 40.4% with a last-5-year mean of 33.2%. I am forecasting conservatively at 28.0%.

These inputs land CMCSA in the HOLD zone with a U/D ratio of 2.5. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) is 8.5%, which is decent for a mega-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 138 studies over the past 90 days (my study and 49 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 4.7%, 11.7%, 19.3, 13.1, and 29.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 16.0, which is lower than MS (16.2) and higher than mine (13.0).

MS high and low EPS are $2.62/share and $1.32/share compared to my $4.26 and $3.04. Both MS numbers seem unreasonably low to me. I’m guessing many studies started with the ’22 EPS of $1.21/share that I excluded due to the one-time impairment charge. Value Line is doing the same in projecting 7.9% EPS growth/year from ’21 to ’27. MS using $2.62/share implies 2.4% EPS contraction/year from ’21 to ’27, which is probably an oversight.

MS LSPF of $24.50 is 10.6% less than mine: a more conservative projection. However, it implies a low P/E of 18.6 (versus the above-stated 14.4) and is 41.7% greater than the MS default of $1.32 * 13.1 = $17.29. I think such a large discrepancy expresses confusion about the initial value chosen.

PEG ratio is another value check I have recently begun to monitor. Zacks lists forward PEG as 0.87. A generally accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [for which I don’t have a number].

MOS seems robust in this study. I would look to invest under $37/share.

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FDS Stock Study (5-15-23)

Posted by on June 15, 2023 at 06:31 | Last modified: May 15, 2023 09:15

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $398.36.

M* writes:

     > FactSet provides financial data and portfolio analytics to the
     > Global investment community. The company aggregates data from
     > third-party data suppliers, news sources, exchanges, brokerages,
     > and contributors into its workstations. In addition, it
     > provides essential portfolio analytics that companies use to
     > monitor portfolios and address reporting requirements. Buy-side
     > clients account for 83% of FactSet’s annual subscription value.
     > In 2015, the company acquired Portware, a provider of trade
     > execution software. In 2017, it acquired BISAM, a risk
     > management and performance measurement provider. In 2022,
     > it completed its purchase of CUSIP Global Services.

This medium-size company has grown sales and earnings at annualized rates of 8.5% and 10.0%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. PTPM has trailed peer and industry averages while falling from 31.6% in ’13 to 24.1% in ’22. The last-5-year average is 27.5%.

ROE has trailed the industry while leading peers over the last decade tracing an “inverse-U” pattern with a last-5-year average of 43.2%. Debt-to-Capital has been lower than peer and industry averages while increasing from 0% in ’13 to 62.5% in ’22 with a last-5-year average of 51.2%.

Much of the debt results from the CGS acquisition from S&P Global. Interest Coverage is 10.5 and Quick Ratio is 1.75. M* assigns a Standard rating for Capital Allocation while Value Line gives an A+ grade for Financial Strength.

I forecast long-term annualized sales growth of 5% based on the following:

I am forecasting below the range.

I forecast long-term annualized EPS growth of 9% based on the following:

I am forecasting below the long-term-estimate range (mean of six: 10.7%).

My Forecast High P/E is 30. Over the last decade, high P/E has trended up from 25.1 to 48.3 (lowest value 21.9 in ’16). The last-5-year-average high P/E and average P/E are 38.1 and 31.7, respectively. I am forecasting below the latter.

My Forecast Low P/E is 20. Over the last decade, low P/E has trended up from 19.5 to 33.7 (lowest value 16.6 in ’16). The last-5-year average is 25.2 and the median over 10 is 20.6.

My Low Stock Price Forecast (LSPF) is the default value of $230.40. This is 41.1% less than the previous closing price and 21.7% less than the ’21 low.

Payout Ratio over the last 10 years has ranged from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 32.1%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with an U/D ratio of 0.8. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) is 3.1%, which is lower than the current return on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 6.7% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 205 studies done in the past 90 days (48 outliers plus my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.1%, 9.7%, 33.0, 22.8, and 30.4%. I am lower across the board. Value Line projects a future average annual P/E of 30.0, which is higher than MS (27.9) and higher than mine (25.0).

With regard to other data, MS high and low EPS are $17.49/share and $9.78/share in contrast to my $17.72 and $11.52. My numbers may be higher due to recent quarterly growth. MS LSPF of $255.10 implies a Forecast Low P/E of 26.1 (versus the above-stated 22.8), is 10.7% greater than mine, and is 14.4% greater than the $9.78 * 22.8 = $222.98 default. This seems somewhat aggressive and emphasizes whatever MOS appears to back my study.

I would look to re-evaluate FDS under $305/share.

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CBRE Stock Study (5-15-23)

Posted by on June 13, 2023 at 06:51 | Last modified: May 13, 2023 21:26

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $73.10. Previous studies on this stock can be seen here and here.

Value Line writes:

     > CBRE Group, Inc. is a worldwide commercial real estate firm,
     > offering services to occupiers, owners, lenders, and
     > investors in the office, retail, industrial, and multi-family
     > segments of the market. Provides facilities management,
     > leasing, property sales, mortgage origination, investment
     > management, and valuation services.

This large-size company has grown sales and earnings at annualized rates of 17.8% and 18.0%, respectively, for the last 10 years. Lines are mostly up, straight, and parallel except for sales in ’20 and EPS in both ’20 and ’22. PTPM has trended slightly lower over the last 10 years while edging out peer and industry averages. PTPM last-5-year average is 6.1%.

Aside from a downside outlier in ’20 (11.4%), ROE has ranged from 16.8% in ’22 to 22.9% in ’19 over the last 10 years to beat peer and industry averages. The last-5-year average is 19.2%. Debt-to-Capital has been trending down since ’15 with a last-5-year average of 35.6%. This is about even with the industry and slightly higher than peer averages. Per Value Line, Interest Coverage is 25 and Financial Strength gets an A rating. M* assigns a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 2% based on the following:

I am forecasting below the range.

I forecast long-term annualized EPS growth of 3% based on the following:

I am forecasting near the bottom of the long-term-estimate range (mean of four: 9.2%). While this is conservative, I am projecting from the ’22 EPS of $4.29/share rather than Q1 ’23 of $3.48/share (annualized).

My Forecast High P/E is 19. Over the last decade, high P/E has ranged from 16.3 (’18 and ’19) to 30.5 in ’20 with a last-5-year average of 21.8. I am forecasting near the bottom of the range (only ’18 and ’19 are lower).

My Forecast Low P/E is 10. Over the last decade, low P/E has ranged from 10.0 in ’19 to 21.0 in ’13 with a last-5-year average of 12.3. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default value of $42.90. This is 41.3% less than the previous closing price and 26.9% less than the ’21 low.

These inputs land CBRE in the HOLD zone with an U/D ratio of 0.7. Total Annualized Return (TAR) is 5.3%.

PAR (using Forecast Average—not High—P/E) is -0.3%, which is not acceptable. 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 52 studies done in the past 90 days (my study along with 11 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 7.0%, 9.6%, 21.0, and 12.7. I am lower across the board. Value Line projects a future average annual P/E of 15.0, which is lower than MS (16.9) and just higher than mine (14.5). Based on the low sample size, MOS behind this study seems robust due to growth rate.

With regard to other data, MS high and low EPS are $6.34/share and $3.13/share in contrast to my $4.97 and $4.29. My low EPS may be higher due to projection from ’22 EPS (higher than Q1 ’23), but I’m not really sure why $3.13 is that low. My high EPS is lower due to my lower forecast growth rate. MS Low Stock Price Forecast of $44.20 implies a Forecast Low P/E of 14.1 (versus the above-stated 12.7), is 3.0% less than mine, and is 11.2% greater than the $3.13 * 12.7 = $39.75 default.

I would look to re-evaluate the stock under $55/share.

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ADUS Stock Study (5-29-23)

Posted by on June 10, 2023 at 12:54 | Last modified: May 30, 2023 13:34

I recently did a stock study on Addus Homecare Corp. (ADUS) with a closing price of $88.81.

M* writes:

     > Addus HomeCare Corp is engaged in the provision of in-home personal
     > care services. It operates through the following segments: Personal
     > care segment, which is a key revenue driver, provides nonmedical
     > assistance with activities of daily living, primarily to persons who
     > are at risk of hospitalization or institutionalization, such as the
     > elderly, chronically ill and disabled. The Hospice segment provides
     > physical, emotional and spiritual care for people who are terminally
     > ill and their families. Its Home health segment provides services
     > that are primarily medical in nature to those individuals who may
     > require assistance during an illness or after surgery.

Over the last decade, this small-size company has grown sales and EPS at annualized rates of 15.9% and 13.8%, respectively. Lines are mostly up, straight, and parallel except for EPS dip in ’15. PTPM has been up and down—leading peers but trailing the industry—with a last-5-year average of 5.6%.

Over the last decade, ROE has led peer and industry averages despite trending down from 9.8% to 7.5% with a last-5-year average of 7.0%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year average of 21.1%. Quick Ratio is 1.6 and Interest Coverage is 7.8 per M*. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 6.0% based on the following:

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 11.0% based on the following:

I am forecasting below the long-term-estimate range (mean of five: 13.9%). I am using ’22 EPS of $2.84/share as the initial value rather than Q1 ’23 EPS of $3.10 (annualized).

My Forecast High P/E is 36. Over the last 10 years, high P/E has ranged from 27.3 in ’14 to 56.7 in ’20 with a last-5-year average of 50.4. The last-5-year-average average P/E is 37.9. I am forecasting below that.

My Forecast Low P/E is 22. Over the last 10 years, low P/E has ranged from 7.0 in ’13 to 32.0 in ’19 with a last-5-year average of 25.4. I am forecasting just below the median (22.4).

My Low Stock Price Forecast (LSPF) is the default value of $62.50 (based on initial EPS of $2.84/share). This is 29.6% less than the previous close and 8.9% less than the ’22 low.

These inputs land ADUS in the BUY zone with an U/D ratio of 3.2. Total Annualized Return (TAR) is 14.2%.

PAR (using Forecast Average—not High—P/E) is 9.3%, which 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 158 studies over the past 90 days (my study and 52 outliers excluded), averages for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 9.7%, 13.0%, 39.2, and 24.9, respectively. I am lower across the board.

MS high and low EPS are $5.40/share and $2.85/share in contrast to my $4.79 and $2.84. My high EPS is probably lower due to a lower growth rate.

MS LSPF of $70.70 is consistent with the $2.85 * 24.9 = $70.97 default value. It’s also 13.1% greater than mine, which along with my lower inputs lend support for a robust MOS behind the current study.

PEG ratio is another value check I am just starting to monitor. My forward PEG is 29 / 11 = 2.6. A generally-accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [which I don’t have].

ADUS shares are a BUY under $89.

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ALGN Stock Study (5-11-23)

Posted by on June 9, 2023 at 06:53 | Last modified: May 11, 2023 15:02

I recently did a stock study on Align Technology Inc. (ALGN) with a closing price of $305.26.

CFRA writes:

     > Align Technology, Inc. (ALGN) is a global medical device company
     > engaged in the design, manufacture, and marketing of Invisalign
     > clear aligners and iTero intraoral scanners and services for
     > orthodontics, and restorative and aesthetic dentistry. ALGN
     > also provides exocad computer-aided design and computer-aided
     > manufacturing (“CAD/CAM”) software for dental laboratories and
     > dental practitioners. ALGN’s products are intended primarily
     > for the treatment of malocclusion or the misalignment of teeth.

This medium-size company has posted annualized growth of 23.8% and 25.0% for sales and EPS (excluding ’20, which is an upside outlier that boosts the latter growth rate to 30.3%), respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for a spike in ’20 EPS and ’22 EPS, which drops off considerably. PTPM has mostly led the industry while falling behind peers in ’19 with a last-5-year average of 20.8%.

ROE leads peer and industry averages with a last-5-year average (excluding ’20) of 24.4%. The same holds for Debt-to-Capital with a last-5-year average of 2.7% (per Value Line, the company has no long-term debt). Value Line gives ALGN a Financial Strength rating of B++ and M* a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 6% based on the following:

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 10% based on the following:

As CFRA recuses itself from that longer-term estimate, I believe YF’s long-term estimate to also be NMF as an extreme outlier. I am forecasting conservatively below the long-term-estimate range (mean of five: 17.0%).

An initial value discussion awaits since EPS numbers are discrepant. The ’22 10-K shows a drop from $9.69/share in ’21 to $4.61/share in ’22 (d52.4%). Value Line, however, shows a drop from $9.79/share in ’21 to $7.22/share in ’22 (d26.3%) without footnoting any nonrecurring losses. CFRA shows a drop in normalized EPS from $11.22/share in ’21 to $7.76/share in ’22 (d30.8%) without giving any explanation as to what is being omitted.

And suddenly, YF’s 43.3% doesn’t look so outrageous if done from ’23 Q1 EPS ($4.05/share annualized) because $24.47 in ’27 is about even with the extrapolated trendline (with ’20 EPS of $22.41/share excluded).

For lack of any better idea and a need to maintain a minimum high EPS for a valid study, I am forecasting 10% EPS growth. As mentioned above, this is below the long-term-estimate range. I will project from the trendline, however, rather than the last quarterly or annual EPS. Furthermore, I will exclude ’21 EPS. This lowers the ’22 trendline from $8.69/share to $7.37/share.

My Forecast High P/E is 30. Over the last 10 years, high P/E ranges from 24.3 (’20) to 142 (upside outlier in ’22) with a last-5-year average of 60.5. Excluding ’20 as a downside outlier, the next-lowest value is 36.8 (’14). I am forecasting conservatively.

My Forecast Low P/E is 24. Over the last 10 years, low P/E ranges from 5.7 in ’20 to 51 in ’21. I would exclude both as outliers. The last-5-year average is then 35.5. The second-lowest P/E is 24.4 in ’14. I am forecasting just below the latter.

My Low Stock Price Forecast (LSPF) is $176.90. Zero growth is assumed beyond the $7.37/share derived above. This is 42.0% below the previous close and 2.8% above the 52-week low.

These inputs land ALGN in the HOLD zone with an U/D ratio of 0.9. Total Annualized Return (TAR) is 7.0%.

PAR (using Forecast Average—not High—P/E) is 3.1%, which is less than the current risk-free rate. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 7.0% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 132 studies done in the past 90 days (my study along with 29 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 13.3%, 15.0%, 47.9, and 28.7. Despite being lower on all inputs, my EPS override makes comparison difficult. Value Line projects a future average annual P/E of 26.5, which is much lower than MS (38.3) and lower than mine (30.0). The former is ~50% greater than Value Line, which makes me wonder if other studies were as confused about this company as I am.

With regard to other data, MS high and low EPS are $8.53/share and $4.55/share in contrast to my $11.87 and $7.37. MS LSPF of $141.90 implies a Forecast Low P/E of 31.2 (versus the above-stated 28.7), is 19.8% less than mine, and is 8.7% greater than the $4.55 * 28.7 = $130.59 default.

At first, this encounter with ALGN was much easier than my original 11/8/22 stock study because the negative analyst forecasts have now turned positive thereby facilitating the math. Ultimately though, this study proved to be every bit as much of a challenge due to confusion about what different sources are excluding and why.

The stock has rallied 77.4% from [what is currently] the 52-week low. I wouldn’t expect any stock that has rallied this much to be near the BUY zone, and this certainly is not. I would look to re-evaluate under $240/share.

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