BKNG Stock Study (5-10-23)

I recently did a stock study on Booking Holdings Inc. (BKNG) with a closing price of $2,634.91.

M* writes:

     > Booking is the world’s largest online travel agency by revenue,
     > offering booking and payment services for hotel and alternative
     > accommodation rooms, airline tickets, rental cars, restaurant
     > reservations, cruises, experiences, and other vacation packages.
     > The company operates a number of branded travel booking sites,
     > including Booking.com, Agoda, OpenTable, and Rentalcars.com,
     > and has expanded into travel media with the acquisitions of
     > Kayak and Momondo. Transaction fees for online bookings account
     > for the bulk of revenue and profits.

This large-size company has grown sales and EPS at annualized rates of 7.2% and 4.9%, respectively, over the last decade (’20 excluded due to COVID-19). Lines are mostly up, straight, and parallel with the exception of slight EPS softness in ’16-’17 (goodwill impairment charge with EPS subsequently catching back up to previous trendline in ’18) and ’21 (lower sales and EPS followed by healthy rebound in ’22). PTPM has been higher than peers and the industry with a last-5-year average of 23.5% (no exclusions). Also higher than peers and the industry is ROE with a last-5-year average of 43.8%.

For most of the last 10 years, Debt-to-Capital has been lower than industry averages while roughly equal to peers. The last-5-year average is 65.8%. Current and Quick Ratios are ~1.5 and Interest Coverage is 10.8 per M*. M* also rates Capital Allocation as Exemplary given that the $6.3B debt to mature within the next five years is much less than the projected $30B+ FCF over the same period. Value Line gives a B++ grade for Financial Strength.

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

• CNN Business projects 20.5% YOY and 15.7% per year for ’23 and ’22-’24, respectively (based on 24 analysts).
• YF projects YOY 20.3% and 11.4% for ’23 and ’24, respectively (30 analysts).
• Zacks projects YOY 19.9% and 10.2% for ’23 and ’24, respectively (6).
• Value Line projects 5.2% annualized growth from ’22-’27.
• CFRA projects 21.0% YOY and 14.4% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year annualized ACE of 13.7%.

I am forecasting just below Value Line’s long-term estimate (includes zero growth from ’24-’27, which seems good for a conservative projection but puzzling otherwise).

I forecast long-term annualized EPS growth of 15% based on the following:

• CNN Business reports ACE of 35.7% YOY and 26.8% per year for ’23 and ’22-’24, respectively (based on 24 analysts) along with 5-year annualized growth of 21.5%.
• MarketWatch projects 24.4% and 17.5% per year for ’22-’25 and ’23-’25, respectively (32 analysts).
• Seeking Alpha projects 4-year annualized growth of 20.8%.
• YF projects YOY 36.3% and 18.5% for ’23 and ’24, respectively (24), along with 5-year annualized growth of 25.4%.
• Zacks projects YOY 36.5% and 19.6% for ’23 and ’24, respectively (9), along with 5-year annualized growth of 16.5%.
• Value Line projects annualized growth of 15.8% from ’22-’27 [12.5% from ’23-’27].
• CFRA projects 36.3% YOY and 26.4% per year for ’23 and ’22-’24, respectively.
• M* has long-term ACE at 19.9% per year.

I am forecasting below the long-term-estimate range (mean of six: 20.0%).

My Forecast High P/E is 20. Excluding upside outliers of 1547 in ’20 and 95.4 in ’21, over the last 10 years high P/E has ranged from 18.6 in ’19 to 44.1 in ’17 with a last-5-year average of 27.0. Only ’19 is lower than my [conservative] forecast.

My Forecast Low P/E is 15. Excluding upside outliers of 769 in ’20 and 66.1 in ’21, over the last 10 years low P/E has ranged from 14.6 in ’19 to 31.1 in ’17 with a last-5-year average of 18.4. Only ’19 is lower than my [conservative] forecast.

My Low Stock Price Forecast (LSPF) is the default value of $1,529.50. This is 42.0% less than the previous close and 5.4% less than the 52-week low.

These inputs land BKNG in the HOLD zone with an U/D ratio of 1.3. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) is 6.4%, which is less than I want to see. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 149 studies done in the past 90 days (my study along with 19 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 11.6%, 14.5%, 29.7, and 20.0. I am lower on all inputs but EPS growth (15.0%). Value Line projects a future average annual P/E of 20.0, which is lower than MS (24.9) and higher than mine (17.5).

With regard to other data, MS high and low EPS are $150.63/share and $66.18/share compared to my $205.10 and $101.97. ’22 EPS of $76.35 at least partially explains this as a much lower initial value for projection than the $101.97/share for Q1 ’23. MS LSPF of $1,395.40 implies a Forecast Low P/E of 21.1 (versus the above-stated 20.0), is 8.8% lower than mine, and is 5.4% higher [more aggressive] than the $66.18 * 20.0 = $1,323.60 default.

I don’t see much MOS behind this study and in retrospect, I would do two things differently. First, as recovery from COVID-19 is underway but not complete, analyst estimates may remain elevated (catch-up to trendline). [As noted above] Value Line long-term EPS estimate starting in ’23 compared to ’22 suggests an EPS growth rate of 12% rather than 15%. Second, Q1 ’23 EPS (annualized) is much greater than ’22. As a conservative measure when I see such leap, I could use the previous (lower) value. These modifications would boost MOS behind this study at the cost of leaving the stock even farther from the BUY zone. Either way, with BKNG up ~35% in the last six months it’s not one I should expect to be near the BUY zone anyway.

I would look to re-evaluate the stock under $2,170/share.

GOOG Stock Study (5-9-23)

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

M* writes:

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

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

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

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

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

I am projecting below the two long-term estimates.

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

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

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

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

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

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

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

PAR (using Forecast Average—not High—P/E) is 8.9%, which is less than I want to see. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 674 studies done in the past 90 days (my study along with 84 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 10.0%, 13.2%, 27.2, and 18.6. I am lower across the board. Value Line projects a future average annual P/E of 25.0, which is higher than MS (22.9) and much higher than mine (20.0). MOS backing the current study seems robust.

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

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

G Stock Study (5-24-23)

I recently did a stock study on Genpact Ltd. (G) with a closing price of $38.13.

M* writes:

     > Genpact Ltd is a provider of business process management services.
     > Clients are industry verticals and operate in banking and
     > financial services, insurance, capital markets, consumer product
     > goods, life sciences, infrastructure, manufacturing and services,
     > healthcare, and high-tech. Genpact’s services include aftermarket,
     > procurement, risk and compliance, human resources, IT, industrial
     > direct solutions, collections, finance and accounting, and media
     > services. Genpact’s end market by revenue is India. The company
     > is a General Electric spin-off, which is still a large source of
     > revenue for Genpact.

This medium-size company has grown sales and EPS at annualized rates of 8.5% and 8.9% over the last decade. Lines are mostly up, straight, and parallel except for EPS dips in ’14 and ’22. PTPM has remained above peer and industry averages, declining from 14.4% in ’13 to 10.6% in ’22 with a last-5-year average of 11.4%.

Over the last 10 years, ROE slightly trails the industry while beating peer averages with a last-5-year mean of 18.9%. Debt-to-Capital is lower than industry averages and about even with peers despite climbing from 33.4% in ’13 to 48.2% in ’22 with a last-5-year mean of 50.3%. Quick Ratio is 1.7 and Interest Coverage is 9.2. Value Line rates the company B++ for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 1.4x on a TTM basis.”

I forecast long-term sales growth of 7.0% based on the following:

• CNN Business projects 6.8% YOY and 15.9% for ’23 and ’22-’24, respectively (based on 10 analysts).
• YF projects YOY 6.5% and 9.3% for ’23 and ’24, respectively (10 analysts).
• Zacks projects YOY 6.5% and 8.8% for ’23 and ’24, respectively (6).
• Value Line projects 7.6% annualized growth from ’22-’27.
• CFRA projects 6.7% YOY and 15.6% per year for ’23 and ’22-’24, respectively.

I am forecasting just below the long-term estimate.

I forecast long-term annualized EPS growth of 8.0% based on the following:

• CNN Business projects 7.7% YOY and 9.7% per year for ’23 and ’22-’24, respectively (based on 10 analysts), along with 5-year annualized growth of 8.8%.
• MarketWatch projects 9.9% YOY and 10.7% per year for ’23 and ’22-’24, respectively (12 analysts).
• Nasdaq.com projects 12.7% YOY and 11.8% per year for ’24 and ’23-’25 (6, 7, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 10.1%.
• YF projects YOY 7.7% and 11.9% for ’23 and ’24, respectively (11), along with 5-year annualized growth of 9.3%.
• Zacks projects YOY 7.7% and 11.9% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 8.8%.
• Value Line projects 11.2% annualized growth from ’22-’27.
• CFRA projects 4.1% YOY and 6.8% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 10.0%.

I am forecasting below the long-term-estimate range (mean of five: 9.6%). My initial value is the ’22 EPS of $1.88/share rather than Q1 ’23 EPS of $1.94 (annualized).

My Forecast High P/E is 22. Over the last 10 years, high P/E has trended up from 22.0 in ’13 to 28.7 in ’22 with a last-5-year average of 27.7. I am forecasting conservatively at the bottom of the range. The last-5-year-average average P/E is 22.5.

My Forecast Low P/E is 15. Aside from ’20 (downside outlier at 12.4), low P/E over the last 10 years has trended up from 15.8 in ’13 to 20.0 in ’22 with a last-5-year average of 18.6 (outlier excluded). I am forecasting conservatively below the range.

My Low Stock Price Forecast (LSPF) is the default [using $1.88/share] value of $28.20. This is 26.0% less than the previous closing price and 21.2% less than the 52-week low.

Since dividend payment was instituted, Payout Ratio has increased from 17.9% in ’17 to 26.6% in ’22 with a last-5-year average of 23.3%. I am forecasting near the bottom of the range at 18.0%.

These inputs land G in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is 7.0%, 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 27 studies (my study and 12 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 8.0%, 10.0%, 25.3, 16.6, and 21.3%. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is lower than MS (21.0) and mine (18.5).

With regard to EPS, MS high and low are $3.04/share and $1.83/share in contrast to my $2.76 and $1.88. My high EPS is lower due to forecast EPS growth rate.

MS Low Stock Price Forecast of $30.20 is 7.1% greater than mine and in-line with the $1.83 * 16.6 = $30.38 default value.

MOS in this study seems consistent. Come to think of it, everything about this study has been “consistent.” Maybe that’s something to expect for a company with an Earnings Predictability rating (Value Line) of 100.

G is a BUY under $36/share.

GPN Stock Study (5-8-23)

I recently did a stock study on Global Payments Inc. (GPN) with a closing price of $104.78. A previous study on this company was done here.

CFRA writes:

     > Global Payments (GPN) provides payment processing and software
     > solutions globally through a variety of distribution channels,
     > which enable customers to accept card, electronic, check, and
     > digital-based payments. Specific offerings include
     > authorization, settlement, funding, customer support,
     > chargeback, security, and billing services.

This medium-size company has grown sales and earnings at annualized rates of 16.2% and 8.6% over the last nine and eight years, respectively. The latter excludes ’22 whose EPS was materially impacted by a goodwill impairment. Per the 2022 10-K:

     > A sustained decline in our share price and increases in discount
     > rates, primarily resulting from increased economic uncertainty,
     > indicated a potential decline in fair value and triggered a
     > requirement to evaluate our Issuer Solutions and our former
     > Business and Consumer Solutions reporting units for potential
     > impairment as of June 30, 2022… Based on the quantitative
     > assessment of our former Business and Consumer Solutions
     > reporting unit, including consideration of the consumer business
     > disposal group and the remaining assets of the reporting unit,
     > we recognized a goodwill impairment charge of $833.1 million
     > in our consolidated statement of income during the three
     > months ended June 30, 2022.

This company probably does not clear the barbed wire fence (visual inspection), which may explain why so few studies have been done. Revenue data is [missing for ’16 and] down in ’18 while EPS is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. [Stock] Price bars in ’17 and ’23 overlap, which represents several years without significant appreciation.

Pressing on regardless, PTPM has been higher than peers and the industry by averaging 10.0% over the last five years (including 2.5% for ’22).

ROE has averaged 4.0% over the last five years. Since ’13, ROE has been mostly higher than peer and industry averages. Debt-to-Capital has fallen from 64.8% in ’13 to 39.0% in ’22 with a last-5-year average of 36.5%. This is lower than peer and industry averages since ’19. Quick Ratio and Interest Coverage are a concerning 0.50 and 0.76, respectively.

Whether or not it should, the fact that so many analysts are covering this company gives me some reassurance about liquidity. Aside from all the analysts included in consensus estimates shown below, M* says the balance sheet is sound and gives a Standard rating for Capital Allocation. Value Line gives a B++ rating for Financial Strength and says GPN “should continue to meet its various obligations with minimal difficulty.”

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 6.2% YOY growth and 7.2% per year for ’23 and ’22-’24, respectively (based on 31 analysts).
• YF projects YOY 7.3% and 7.6% growth for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY growth of 6.7% and 6.8% for ’23 and ’24, respectively (10).
• Value Line projects annualized growth of 7.2% from ’22-’27.
• CFRA projects 7.2% YOY and 7.0% growth per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 2.8% per year while projecting 5-year annualized growth of 8.0% in its analyst note.

I am forecasting below the long-term estimates.

I forecast long-term annualized EPS growth of 12% based on the following:

• CNN Business projects 11.2% YOY and 12.8% per year for ’23 and ’22-’24, respectively (based on 31 analysts), along with a 5-year annualized growth of 13.7%.
• MarketWatch projects 12.8% and 12.6% for ’22-’24 and ’22-’25, respectively (36 analysts).
• Nasdaq.com projects 15.2% YOY and 16.6% per year for ’24 and ’23-’25 (11, 11, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 14.8%.
• YF projects YOY 10.8% and 14.0% for ’23 and ’24, respectively (33), along with 5-year annualized growth of 14.6%.
• Zacks projects YOY 11.1% and 15.2% for ’23 and ’24, respectively (12), along with 5-year annualized growth of 15.8%.
• Value Line projects annualized growth of 12.5% from ’22-’27.
• CFRA projects 10.9% YOY and 12.9% per year for ’23 and ’22-’24 along with a 3-year estimated CAGR of 14.0%.
• M* provides a long-term estimate of 16.6%.

I am forecasting below the long-term-estimate range (mean of six: 14.7%).

Because ’22 GAAP EPS of $0.40 is NMF as an initial value, I will project from the ’22 trendline at $2.93/share. This is more conservative (lower) than ’21 EPS of $3.29/share.

My Forecast High P/E is 30. Over the last 10 years, high P/E has trended up from 21.9 in ’13 to 67.1 in ’21 with what I suspect are surrounding NMF (i.e. 85.8, 111, and 384 in ’19, ’20, and ’22). I am forecasting at the upper end of my comfort zone, which is the lowest high P/E since ’14 (25.7).

My Forecast Low P/E is 25. Over the last 10 years, low P/E has trended up from 13.3 in ’13 to 54.1 in ’20 with what I suspect are surrounding NMF (i.e. 45.6, 54.1, and 231 in ’19, ’20, and ’22). My forecast is the lowest low P/E since ’17 (22.9).

My Low Stock Price Forecast (LSPF) is $73.30, which is default given the low EPS value mentioned above of $2.93/share. This is 30.0% less than the previous close and 20.6% less than the 52-week low.

Payout Ratio was below 3.0% through ’18 before averaging 25.8% from ’19-’21 (’22 is NMF). I am forecasting low at 10.0%.

These inputs land GPN in the HOLD zone with an U/D ratio of 1.6. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is 6.7%, 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 46 studies done in the past 90 days (my study along with 24 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 9.0%, 13.0%, 40.2, 28.2, and 12.7%. I am lower across the board. Value Line projects a future average annual P/E of 26.5, which is lower than MS (34.2) and just lower than mine (27.5). MOS backing the current study seems moderate.

With regard to other data, MS high and low EPS are $2.02/share (median $0.90) and $1.74/share compared to my $5.17 and $2.93. MS standard deviation is quite large at $1.92 and $1.39, respectively. Along with the small sample size and discrepant mean/median high EPS, this may reflect confusion about how to handle the GAAP EPS. Furthermore, 20 out of 46 studies have low EPS $0.39 or less, which I would argue to be unreasonable. The MS LSPF of $68.90 implies a Forecast Low P/E of 39.6 (versus the above-stated 28.2) and is 28.8% higher than the $1.74 * 28.2 = $49.07 default. Despite being 6.0% lower than mine, this is rather aggressive forecast with regard to valuation.

I would look to re-evaluate GPN under $93/share as a speculative (smaller) holding due mainly to poor visual inspection and questionable liquidity ratios (also a sign that this analyst may not fully understand the business).

MBUU Stock Study (5-1-23)

I recently did a stock study on Malibu Boats Inc. (MBUU) with a closing price of $56.75.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace active lifestyles.

Over the last 10 years, this medium-size (as of 2022) company has grown sales and earnings at annualized rates of 25.7% and 33.6% (75.6% if ’14 is included when the company posted a loss), respectively. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’14, ’18, and ’20. PTPM over the decade is higher than peer and industry averages and has increased from 10.8% in ’13 to 17.3% in ’22. The last-5-year average is 15.5%.

ROE over the last five years is slightly better than peer and industry averages—ranging from 22.9% (’18) to 35.6% (’19) with a mean of 29.9%. Debt-to-Capital is slightly lower than peer and industry averages—declining from 152% in ’15 to 19.5% in ’22 with a last-5-year average of 30.6%. Interest Coverage is 62 and Quick Ratio is 0.8. M* rates the company Standard for Capital Allocation while Value Line assigns a B++ rating for Financial Strength.

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

• CNN Business projects 8.3% YOY and 4.1% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 7.5% growth and 2.5% contraction for ’23 and ’24, respectively (8).
• Zacks projects YOY 7.8% growth and 3.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 7.4% YOY and 2.4% growth per year for ’23 and ’22-’24, respectively (6).
• M* gives 2-year annualized ACE of 6.6% along with projecting 8.0% growth for the next five years in an analyst note.

I am forecasting less than both long-term estimates.

I forecast long-term annualized EPS growth of 4% based on the following:

• CNN Business projects 3.3% YOY growth and 1.4% contraction per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects 0.5% contraction per year and 1.1% growth per year for ’22-’24 and ’22-’25 (9 analysts).
• Nasdaq.com projects 4.8% YOY contraction for ’24 (4).
• YF projects YOY 3.4% growth and 5.4% contraction for ’23 and ’24, respectively (8), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 4.4% growth and 4.4% contraction for ’23 and ’24, respectively (4).
• Value Line projects 3.2% annualized growth from ’22-’27.
• CFRA projects growth of 7.2% YOY and 1.2% growth per year for ’23 and ’22-’24, respectively (9).
• M* projects long-term growth of 10.1%.

I am forecasting toward the bottom of the long-term range (mean of 4 estimates: 9.6%). Despite the first two quarters of growth for ’23 ending with $8.23/share, I am projecting from the last annual EPS ($7.51/share).

My Forecast High P/E is 13. Excluding the upside outlier in ’18 (34.2), high P/E has trended down from 26.0 (’15) to 11.5 (’22) with a last-5-year average of 16.9. I am forecasting toward the bottom of the range (only ’22 value is lower).

My Forecast Low P/E is 5. From ’15 to ’22, low P/E has trended down from 17.4 to 6.4 with a last-5-year average of 10.0. I am projecting below the entire range and [as mentioned above] using ’22 EPS of $7.51 rather than Q2 2023.

My Low Stock Price Forecast (LSPF) is the default value of $37.50. This is 33.4% less than the previous close and 19.0% less than the 52-week low.

These inputs land MBUU in the BUY zone with an U/D ratio of 3.2. The Total Annualized Return (TAR) is 15.9%.

PAR (using Forecast Average—not High—P/E) is 7.7%, which is a bit lower than I would like for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 233 studies done in the past 90 days (62 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 10.0%, 14.8, and 7.8. I am lower across the board. Value Line projects a future average annual P/E of 10.0, which is lower than MS (11.3) and higher than me (9.0).

With regard to other data, MS high and low EPS are $12.66/share and $7.59/share compared to my $9.14 and $7.51. My high EPS is lower due to a lower forecast growth rate and my low EPS would be higher had I included the most recent quarters of growth [not doing so bolsters MOS]. MS LSPF is $45.80, which is 22.1% higher than mine and much lower than the default value of $7.59 * 7.8 = $59.20. MOS seems robust in the current study.

I would look to sail away with shares under $57.00.

As a housekeeping note, this was my second consecutive quarter studying MBUU. Quarterly reviews will become commonplace for many stocks. No changes had to be made for anything in the history, corporate description, or Forecast High/Low P/E sections. This will probably be the case most of the time unless the current study begins a new FY. In that case, a new annual data point may replace the oldest in the 10-year range thereby creating a new distribution.

YETI Stock Study (5-22-23)

I recently did a stock study on YETI Holdings (YETI) with a closing price of $39.33.

M* writes:

     > YETI Holdings Inc is a designer, marketer, and distributor of premium
     > products for the outdoor and recreation market sold under the YETI
     > brand. The company offers products including coolers and equipment,
     > drinkware, and other accessories. Its trademark products include YETI,
     > Tundra, Hopper, YETI TANK, Rambler, Colster, Rambler Colster, Roadie,
     > and Wildly Stronger! Keep Ice Longer!, SideKick, FatWall, PermaFrost,
     > T-Rex, ColdLock, NeverFail, AnchorPoint, InterLock, BearFoot, Vortex,
     > DoubleHaul, LipGrip, Vortex, DryHide, ColdCell, HydroLock, Over-the-
     > Nose, and LOAD-AND-LOCK. The company distributes products through
     > wholesale channels and through direct-to-consumer, or DTC, channels.

This medium-size company has grown sales and earnings at annualized rates of 32.5% and 19.3% over the last 9 and 7 years, respectively [’13-’14 EPS excluded due to small fractional values that artificially inflate the growth rate]. The visual inspection is mediocre. Sales are up and straight except for spike in ’15 and decline in ’17. EPS are down in ’16, ’17, ’19, and ’22 [I will exclude the latter 57.1% YOY decline due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line]. PTPM has led peer and industry averages with a last-5-year average of 12.3%.

ROE has averaged 47.6% over the last four years (too brief a history to compare peer and industry averages). Debt-to-Capital has been declining since ’16 and fell below than peer and industry averages in ’20 with a last-5-year average of 50.9% [23.8% in ’22]. Interest coverage is 23.7 and quick ratio is 0.80. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 7% based on the following:

• CNN Business projects 6.3% YOY and 9.0% per year for ’23 and ’22-’24 (based on 14 analysts).
• YF projects YOY 6.4% and 12.1% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 3.7% growth and 11.5% contraction for ’23 and ’24, respectively (8).
• Value Line projects 9.4% annualized growth from ’22-’27.
• CFRA projects growth of 6.4% YOY and 9.2% per year for ’23 and ’22-’24, respectively (16).
• M* offers a 2-year annualized ACE of 9.5% growth.

I am forecasting conservatively below the long-term estimate.

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

• CNN Business projects 6.8% YOY contraction and 8.1% growth per year for ’23 and ’22-’24, respectively (based on 14 analysts), along with 5-year annualized growth of 9.4%.
• MarketWatch projects growth of 7.9% and 12.7% per year for ’22-’24 and ’22-’25, respectively (16 analysts).
• Nasdaq.com projects 26.4% YOY growth for ’24 (8).
• Seeking Alpha projects 4-year annualized growth of 11.2%.
• YF projects YOY 6.8% contraction and 25.5% growth for ’23 and ’24, respectively (14), along with 5-year annualized growth of 8.6%.
• Zacks projects YOY 7.6% contraction and 24.3% growth for ’23 and ’24, respectively (9), along with 5-year annualized growth of 14.7%.
• Value Line projects annualized growth of 12.5% from ’22-’27.
• CFRA projects 4.3% YOY contraction and 4.9% growth per year for ’23 and ’22-’24, respectively (14).

I am forecasting below the long-term-estimate range (mean of six: 11.3%). I am also projecting from the trendline ($1.90/share) rather than ’22 EPS of $1.03/share or Q1 ’23 EPS of $0.85/share (annualized). I would have otherwise projected from the ’20 EPS [rather than the ’21 $2.40/share due to its 33% YOY spike] of $1.77/share [close to the ’22 trendline at $1.90] and projected forward seven years [rather than five]. The trendline works out well.

My Forecast High P/E is 31. With the stock trading publicly since ’18, high P/E has increased since the first year’s 31.1 for a last-5-year average of 53.0. The last-5-year-average average P/E is 36.9. I am forecasting below the range.

My Forecast Low P/E is 14. Over the last five years, low P/E has ranged from 8.6 (perhaps a downside outlier) in ’20 to 27.0 in ’22 with a last-5-year average of 20.8. I am forecasting conservatively (18.0 in ’18 being the second-lowest value).

My Low Stock Price Forecast (LSPF) is the default [using $1.90/share] value of $26.60. This is 32.4% less than the previous close and 4.7% less than the 52-week low.

These inputs land YETI in the BUY zone with an U/D ratio of 3.7. Total Annualized Return (TAR) is 17.1%.

PAR (using Forecast Average—not High—P/E) is 9.8%, 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 72 studies done in the past 90 days (my study and 15 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 14.5%, 31.6, and 18.7. I am lower across the board. Value Line’s future average annual P/E of 20.0 is lower than both MS (25.2) and mine (22.5).

With regard to EPS, MS high and low are $2.09/share and $1.02/share in contrast to my $2.79 and $1.90. I’m guessing many studies use ’22 EPS as the initial value. I won’t call this unreasonable because only in time can we know if that was a non-recurring item, but I feel my above-stated reasoning for using the trendline is conservative. As another data point, Value Line projects high EPS of $4.25/share: a much higher value that offsets my 2.5-point higher average annual P/E. I believe MOS to be healthy in this study provided the earnings bounceback does occur.

MS LSPF of $23.30 implies a Forecast Low P/E of 22.8 (versus the above-stated 18.7), is 12.4% less than mine (more conservative), and is 22.2% higher (more aggressive) than the $1.02 * 18.7 = $19.07 default.

YETI is a BUY under $41. Given my assumption for bounceback, I will lower this to $39.

All this complication over what to use as an initial projection point is good reason to prefer “up, straight, and parallel.”

BOOT Stock Study (4-26-23)

I recently did a stock study on Boot Barn Holdings Inc. (BOOT) with a closing price of $70.09.

M* writes:

     > Boot Barn Holdings Inc operates specialty retail stores. The
     > company sells western and work-related footwear, apparel, and
     > accessories in the United States. It is a single operating
     > segment, which includes net sales generated from its retail
     > stores and e-commerce websites.

This medium-sized company has grown sales at an annualized rate of 18.5% over the last 10 years and EPS 41.8% per year since 2014. Lines are mostly up, straight, and parallel except for EPS dip in ’15 and projected dip in ’22 (FY ends 3/23). PTPM over the last 10 years has risen from 0.6% to 17% (upside outlier in ’21) with a last-5-year average (excluding the outlier) of 6.6%. This was below peer and industry averages until 2020.

ROE has increased from 10.1% in ’14 to 34.0% in ’21. The last-5-year average is 18.9%, which seems slightly below (above) the industry (peer) average. Debt-to-Capital has averaged 45.7% over the last five years and has been higher than peer and industry averages until ’19. The company has no long-term debt, though, and Interest Coverage is 48.8. Value Line gives a B+ rating for Financial Strength.

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 13.3% YOY and 9.5% per year for ’22 and ’21-’23, respectively (based on 13 analysts).
• YF projects YOY 12.5% and 7.6% for ’23 and ’24, respectively (14 analysts).
• Zacks projects YOY 12.7% and 8.2% for ’23 and ’24, respectively (5).
• Value Line projects 7.5% growth per year from ’21-’27 (FY ’22 still labeled as incomplete).
• CFRA projects 12.6% YOY and 10.1% per year for ’23 and ’22-’24, respectively (14).
• M* gives a 2-year ACE of 9.1%.

I am forecasting just below the range.

I forecast long-term annualized EPS growth of 4% based on the following:

• CNN Business reports contraction of 10.1% YOY and 1.6% per year for ’22 and ’21-’23, respectively (based on 13 analysts), along with 5-year annualized growth of 6.6%.
• MarketWatch projects 1.6% per year contraction and 2.8% growth per year from ’22-’24 and ’22-’25 (14 analysts).
• Nasdaq.com projects 8.7% YOY growth and 11.7% growth per year for ’24 and ’23-’25, respectively (6, 7, and 2 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 18.5%.
• YF projects YOY 12.2% contraction and 7.4% growth for ’23 and ’24, respectively, along with 1.2% growth per year for the next five years (14).
• Zacks projects YOY 9.6% contraction and 8.1% growth for ’23 and ’24, respectively, along with 10.6% growth per year for the next five years (5).
• Value Line projects annualized growth of 4.2% from ’21-’27 (FY ’22 still labeled as incomplete).
• CFRA projects 12.5% YOY contraction and 2.6% contraction per year for ’23 and ’22-’24, respectively (14).

I am forecasting near the lower end of the long-term-estimate range (mean of five: 8.2%).

My Forecast High P/E is 19. High P/E has ranged from 19.3 (’17) to 93.1 (upside outlier in ’15) since 2014. The last-5-year average is 25.6. I am forecasting below the range.

My Forecast Low P/E is 7. Low P/E has ranged from 4.9 (’19) to 31.3 (upside outlier in ’14) since 2014. The last-5-year average is 7.2. I am forecasting higher than values from ’17, ’19, and ’20.

My Low Stock Price Forecast (LSPF) is the default value of $38.90. This is 44.5% less than the previous close and 22.5% less than the 52-week low.

These inputs land BOOT in the HOLD zone with an U/D ratio of 1.9. The Total Annualized Return (TAR) is 12.9%.

PAR (using Forecast Average—not High—P/E) is 4.6%. 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 133 studies done in the past 90 days (61 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.2%, 10.0%, 20.0, and 7.2. I am lower across the board. Value Line projects a future average annual P/E of 17.0, which is higher than MS (13.6) and higher than me (13.0). MOS seems healthy, here.

With regard to other data, MS high and low EPS are $8.95/share and $5.56/share compared to my $6.76 and $5.56. My high EPS is lower due to a lower forecast growth rate, and the latter is TTM (default) as of today’s date [although this is the first time I’ve never seen these match, I’ll chalk it up to coincidence since the mean low EPS is $5.70]. MS LSPF is $44.60 (14.7% higher than mine), which is ~11% more than the default $5.56 * 7.2 = $40.03, implies a Forecast Low P/E of 8.0, and effectively raises the MS future average P/E to 14.0.

I would look to re-evaluate under $61/share.

LULU Stock Study (4-25-23)

I recently did a stock study on Lululemon Athletica Inc. (LULU) with a closing price of $381.37.

M* writes:

     > Lululemon Athletica Inc. designs, distributes, and markets
     > athletic apparel, footwear, and accessories for women, men,
     > and girls. Lululemon offers pants, shorts, tops, and jackets
     > for both leisure and athletic activities such as yoga and
     > running. The company also sells fitness accessories, such
     > as bags, yoga mats, and equipment.

This medium-size company has grown sales and EPS at rates of 19.2% and 19.4% per year since 2013. Lines are mostly up [EPS dipped in ’14, ’17, ’20, and ’22 (N.B.: Both CFRA and Value Line report earnings growth in this most recently completed FY)], straight, and parallel. PTPM over the last 10 years leads peer and industry averages despite falling from 25.0% in ’13 to 16.4% in ’22 with a last-5-year average of 20.1%.

ROE over the last 10 years is roughly equal to the industry averages while outpacing peers, ranging from 16.8% (’17) to 39.0% (’19) and posting a last-5-year average of 32.9%. Debt-to-Capital was zero through 2018. As the company maintains zero long-term debt, this remains much lower than peer and industry averages with a last-5-year average of 20.2% (leases).

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

• CNN Business projects 14.8% YOY and 13.9% per year for ’23 (FY actually ends in Jan) and ’22-’24, respectively (based on 26 analysts).
• YF projects YOY 15.5% and 13.4% for ’24 and ’25, respectively (27 analysts).
• Zacks projects YOY 15.7% and 11.9% per year for ’24 and ’25, respectively (12).
• Value Line projects 11.5% annualized growth from ’22-’27.
• CFRA projects 15.0% YOY and 15.1% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 12.5% annualized growth while projecting 11.0% for the next 10 years in its analyst note.

I am forecasting just below the range.

I forecast long-term annualized EPS growth of 13% based on the following:

• CNN Business projects 14.7% YOY and 15.4% per year for ’23 (FY actually ends in Jan) and ’22-’24, respectively (based on 27 analysts), along with 5-year annualized growth of 14.9%.
• MarketWatch projects annualized growth of 16.4% and 16.2% for ’23-’25 and ’23-’26 (33 analysts).
• Nasdaq.com projects annualized growth of 12.7% and 14.0% for ’24-’26 and ’24-’27, respectively [15, 5, and 1 analyst(s) for ’24, ’26, and ’27].
• Seeking Alpha projects 4-year annualized growth of 16.8%.
• YF projects YOY 15.3% and 15.8% for ’24 and ’25, respectively (26), along with 5-year annualized growth of 16.7%.
• Zacks projects YOY 13.9% and 16.0% for ’24 and ’25, respectively (16), along with 5-year annualized growth of 20.0%.
• Value Line projects 13.5% annualized growth from ’22-’27.
• CFRA projects 14.2% YOY and 16.9% per year for ’23 and ’22-’24, along with a 3-year projected CAGR of 18.0%.
• M* projects long-term annualized growth of 18.5%.

I am forecasting below the long-term-estimate range (mean of six: 16.7%).

My Forecast High P/E is 36. High P/E has ranged from 37 (’15 and ’16) to 88.9 (upside outlier in ’20) over the last 10 years. The last 5-year average excluding ’20 is 55.5 and trending higher. I am forecasting conservatively just below the range.

My Forecast Low P/E is 30. Low P/E has ranged from 20.7 (’18) to 37.7 (’22) over the last 10 years. The last 5-year average is 30.3. I am forecasting relatively high because anything less makes for an unreasonable Low Stock Price Forecast (LSPF).

My LSPF is the default value of $200.40. This is 47.5% less than the previous close and 20.3% less than the 52-week low.

These inputs land LULU in the HOLD zone with an U/D ratio of 0.3. The Total Annualized Return (TAR) is 3.0%.

PAR (using Forecast Average—not High—P/E) is 1.3%. If a healthy margin of safety (MOS) anchors this study, then I could proceed based on TAR instead. Even this is less than what T-bills are paying right now, however.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 394 studies done in the past 90 days (72 total outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 15.0%, 16.0%, 39.3, and 26.5. I am lower on all but Forecast Low P/E (see explanation above). Value Line projects a future average annual P/E of 31.0, which is lower than MS (32.9) and lower than me (33.0). MOS is hardly discernable in the current study.

With regard to other data, MS high and low EPS are $16.76/share and $8.17/share compared to my $12.31 and $6.68. My high EPS is lower due to a lower forecast growth rate, but I am challenged to explain the latter (see N.B. above). MS Low Stock Price Forecast is $219.30 (9.4% higher than mine). This is consistent with the default $8.17 * 26.5 = $216.50.

From this analyst’s perspective, being up 18.9% in the last six months has this stock overcooked. I would look to re-evaluate under $261/share.

CVS Stock Study (4-24-23)

I recently did a stock study on CVS Health Corp. (CVS) with a closing price of $74.84.

Value Line writes:

     > CVS Health Corp. is the nation’s foremost integrated health-
     > care services provider, combining one of the nation’s leading
     > pharmaceutical services companies with the country’s largest
     > pharmacy chain. It fills or manages roughly four billion
     > prescriptions per year through its Pharmacy Services and
     > Retail/LTC segments and has 9,600-plus locations across the
     > U.S. and Puerto Rico. Acquired Drogaria Onofre, giving it a
     > presence in Brazil in 2/13. Retail stores average about
     > 9,900 square feet. Pharmacy (Rx) contributes 77.5% of sales.

This mega-size (over $50B annual revenue) company has grown sales and EPS at annualized rates of 11.2% and 1.2%, respectively, over the last decade. The latter, which excludes a loss in ’18 (goodwill impairment charges), was hurt by non-recurring events in ’22. This is explained in the 10-K:

     > Operating income decreased $5.4 billion, or 41.3%, in 2022
     > compared to 2021. The decrease in operating income was
     > primarily driven by the $5.8 billion of opioid litigation charges
     > and declines in the Retail/LTC segment, which included a $2.5
     > billion loss on assets held for sale related to the write-
     > down of the Company’s Omnicare® long-term care business.

Excluding ’22 [and ’18], historical EPS growth is 5.3%.

Sales are up and mostly straight while EPS dips in ’18 and ’22. PTPM has trended lower over the last 10 years while lagging peer and industry averages. The last-5-year average is 2.6%.

ROE has also lagged peer and industry averages over the previous decade with a last-5-year average of 7.1%. Debt-to-Capital has been higher than peer and industry averages with a last-5-year average of 53.9%. Interest Coverage is 3.5 and although Value Line offers an A+ rating for Financial Strength, M* rates “on the weak side of Standard” for Capital Allocation.

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

• CNN Business projects 3.5% YOY and 0.5% growth per year for ’23 and ’22-’24, respectively (based on 13 analysts).
• YF projects YOY 3.7% growth and 2.0% contraction for ’23 and ’24, respectively (21 analysts).
• Zacks projects YOY 4.0% growth and 2.7% contraction for ’23 and ’24, respectively (7).
• Value Line projects 3.4% annualized growth from ’22-’27.
• CFRA projects 1.1% YOY growth and 3.0% contraction per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 3.0% annualized growth.

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 26% based on the following:

• CNN Business projects 1.0% YOY and 2.3% growth per year for ’23 and ’22-’24, respectively (based on 13 analysts), along with 5-year annualized growth of 6.7%.
• MarketWatch projects annualized growth of 2.6% and 4.8% for ’22-’24 and ’22-’25 (25 analysts).
• Nasdaq.com projects growth of 2.7% YOY and 7.0% per year for ’24 and ’23-’25, respectively (11, 9, and 6 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 5.9%.
• YF projects YOY 0.9% and 3.4% for ’23 and ’24, respectively (22), along with 5-year annualized growth at 5.0%.
• Zacks projects YOY 0.8% and 2.6% for ’23 and ’24, respectively (9), along with 5-year annualized growth of 7.3%.
• Value Line projects 4.8% annualized growth from ’22-’27.
• CFRA projects 2.0% YOY and 5.6% per year for ’23 and ’22-’24, respectively, along with a 3-year projected CAGR of 5%.
• M* projects long-term annualized growth of 5.6%.

I am forecasting below the long-term-estimate range at 4% (mean of six: 5.9%).

As discussed above, non-recurrent events sapped 2022 earnings. Value Line, which excludes one-time charges, lists ’21 and ’22 EPS as $8.40 and $8.69 as opposed to M* $5.95 and $3.14. To be conservative, I will project out five years from Value Line’s ’21 (not ’22) stated EPS to get $10.22. This is roughly equivalent to a 26% growth rate on $3.14 to get $9.97.

My Forecast High P/E is 12. Excluding ’18 (NMF) and ’22 (upside outlier 35.4), high P/E over the last 10 years has ranged from 13.1 (’17) to 24.9 (’14) with a last-5-year average of 15.6. I am forecasting below the range.

My Forecast Low P/E is 6. Excluding ’18 (NMF) and ’22 (upside outlier 27.5), low P/E over the last 10 years has ranged from 9.5 (’20) to 17.6 (’15) with a last-5-year average of 10.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $50.40. This is 30.8% less than the previous close and 25.9% less than the ’21 low (stock currently trades near the 52-week low).

Payout Ratio over the last 10 years has ranged from 24.0% in ’13 to 39.4% in ’19 excluding ’18 (NMF) and ’22 (upside outlier 70.1%). The last-5-year average is 36.5%. I am forecasting conservatively at 20.0%.

These inputs land CVS in the HOLD zone with an U/D ratio of 2.1. The Total Annualized Return (TAR) is 12.1%.

PAR (using Forecast Average—not High—P/E) is 6.5%. 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 495 studies done in the past 90 days (122 total outliers including my own excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.0%, 7.9%, 17.5, 12.6, and 33.8%. I am lower on everything but EPS growth for which I modified the projection point. Value Line projects a future average annual P/E of 12.0, which is lower than MS (15.1) and higher than me (9.0). What this all implies for MOS is unclear.

With regard to other data, MS high and low EPS are $4.70/share and $4.45/share compared to my $9.97 and $8.40. MS seems to be confused on two counts. First, despite projecting a 7.9% EPS growth rate per year, MS low and high EPS [both five years into the future] are only 6% apart. This is not something I have noted before, but going forward with other stock studies I probably should. Second, although the $4.70 is ~ $3.14 * (1.08 ^ 5), that basically leaves ’27 earnings equal to ’15-’16. According to Value Line, both EPS (and FCF/share) have nearly doubled over that time interval.

While these observations cast doubt over the current batch of MS data, analysts’ estimates do support the depressed MS high and low EPS. Without exclusion of one-time charges, I would expect a much higher growth rate to reclaim the historical trendline (e.g. my 26%, or ’23 and ’24 EPS projections for TGT, which I last studied on 4/19/23). The highest of five long-term EPS estimates—Zacks at 7.3%—is not suggestive of any catch-up and with analyst long-term growth rates understood as projections from the last completed FY, no catch-up will be forthcoming. I question the apparent contradiction.

MS LSPF is $57.00 (13.1% higher than mine). This is consistent with the default $4.45 * 12.6 = $56.07.

I would look to re-evaluate this stock under $65/share.

DPZ Stock Study (5-16-23)

I recently did a stock study on Domino’s Pizza Inc. (DPZ) with a closing price of $307.85.

CFRA writes:

     > Domino’s is a fast-growing restaurant company and the largest
     > pizza company in the world, it has more than 18,800 locations,
     > primarily in the U.S. and Canada. The company is primarily a
     > franchisor, with only 2% of stores being company owned. DPZ
     > has three reportable segments, which include U.S. stores,
     > international franchises, and supply chain operations.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 11.7% and 23.3% per year, respectively. Lines are mostly up, straight, and parallel except for declining earnings in ’22. PTPM over the decade has been up and down within a narrow range of 12.5% (’13 and ’18) to 14.4% (’17 and ’21) with a last-5-year average of 13.3%. This is higher than peers but lower than industry averages.

Over the last decade, ROE has ranged from d15.2% (’20) to d9.0% (’17) with a last-5-year average of d12.3%. Yes, those are all negative numbers that are less than peers in 8 out of 10 years. The industry posted positive ROE in 5 of 9 years. Although strange, one other well-known company that carries an ongoing shareholders’ deficit [rather than equity] is SBUX.

Over the last 10 years, Debt-to-Capital has ranged from 412% (’20) to 754% (’17) with a last-5-year average of 516%. This soars high above peer and industry averages. Without doing further research, one thing I find strange is that leverage often boosts ROE; here, leverage is enormous and ROE is negative. Two more yellow flags are Interest Coverage and Quick Ratio at 3.9 and 0.74, respectively.

M* does not seem worried about the debt load. About the “average” balance sheet, the analyst report writes:

     > Strong FCF offers more than adequate coverage [preventing the
     > company from meaningful default risk]… staggered debt maturities
     > over the next three years show a negligible amount of principal
     > coming due over the next three years… a flexible net debt/EBITDA
     > target of 3-6 times designed to minimize the firm’s cost of capital
     > based on prevailing market rates and interest deductibility [is] a
     > shareholder-friendly strategy that encourages management discipline.

M* gives DPZ an Exemplary rating for Capital Allocation [along with Wide/Stable Economic Moat]. Value Line does not mention debt at all in its most recent [5/19/23] commentary and rates the company A for Financial Strength.

Anecdotally, DPZ seems to have a wealth of analyst coverage for a medium-size company. If debt were a huge problem, then I think it would be difficult to hide.

For those concerned, look no further than the company’s own 10-K under “Additional Disclosures/Risks Related to Our Indebtedness” for an extensive discussion of everything that could possibly go wrong due to a highly leveraged balance sheet.

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

• CNN Business projects 2.2% YOY and 3.3% per year for ’23 and ’22-’24, respectively (based on 26 analysts).
• YF projects YOY 1.5% and 5.2% for ’23 and ’24, respectively (24 analysts).
• Zacks projects YOY 1.8% and 4.9% for ’23 and ’24, respectively (8).
• Value Line projects 6.4% annualized growth from ’22-’27.
• CFRA projects 1.9% YOY and 3.6% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year annualized ACE of 2.9% and projects 7.0% long-term growth in its analyst note.

I am forecasting less than the two long-term estimates.

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

• CNN Business projects 6.8% YOY and 9.4% per year for ’23 and ’22-’24, respectively (based on 26 analysts), along with 5-year annualized growth of 11.7%.
• MarketWatch projects 11.3% and 11.4% per year for ’22-’24 and ’22-’25, respectively (32 analysts).
• Nasdaq.com projects 11.9% YOY and 12.9% per year for ’24 and ’23-’25 (11, 11, and 2 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 10.5%.
• YF projects YOY 10.8% and 12.0% for ’23 and ’24, respectively (30), along with 5-year annualized growth of 10.8%.
• Zacks projects YOY 6.4% and 11.9% for ’23 and ’24, respectively (11), along with 5-year annualized growth of 11.8%.
• Value Line projects 17.0% annualized growth from ’22-’27.
• CFRA projects 5.7% YOY and 9.1% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 3.0%.
• M* projects long-term annualized growth of 11.0%.

I am forecasting below the long-term-estimate range (mean of six: 12.1%). To be conservative, I am projecting from the ’22 EPS of $12.53/share rather than Q1 ’23 EPS (annualized) of $12.97/share.

My Forecast High P/E is 25. Over the last 10 years, high P/E has trended up from 28.7 (’13) to 45.1 (’22) with a last-5-year average of 38.1. I am projecting conservatively below the entire range (5-year-average average P/E is 30.5).

My Forecast Low P/E is 19. Over the last 10 years, low P/E has ranged from 17.7 (’13) to 26.8 (’15 and ’17) with a last-5-year average of 23.0. I am forecasting near the bottom of the range (only ’13 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $238.10. This is 22.7% less than the previous close and 18.2% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 25.2% in ’20 to 35.7% in ’15 with a last-5-year average of 28.3%. I am forecasting conservatively at 25.0%.

These inputs land DPZ in the HOLD zone with an U/D ratio of 2.8. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average–not High–P/E) is 7.8%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can focus on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 85 studies done in the past 90 days (15 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 6.8%, 10.3%, 30.1, 22.5, and 28.3%. I am lower across the board. Value Line projects a future average annual P/E of 25.0: lower than MS (26.3) and higher than mine (22.0).

With regard to other data, MS high and low EPS are $20.92/share and $12.54/share in contrast to my $19.28 and $12.97. My high EPS is lower due to a lower EPS growth rate. MS LSPF of $273.80 implies a Forecast Low P/E of 21.8 (versus the above-stated 22.5), is 15.0% greater than mine, and is just 3.0% less than the $12.54 * 22.5 = $282.15 default.

Shares are a BUY under $305 given an apparently healthy MOS in this study, but two things still give me pause. First, I want TAR closer to 15.0%. Second, the high debt load [albeit an inextricable component of the business model] makes me uncomfortable since some investment club guidelines prohibit it.

I will look to re-evaluate this stock under $295/share.