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CVS Stock Study (4-24-23)

Posted by on May 22, 2023 at 07:21 | Last modified: April 24, 2023 14:45

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:

I am forecasting conservatively.

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

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.

Categories: BetterInvesting® | Comments (0) | Permalink

DPZ Stock Study (5-16-23)

Posted by on May 19, 2023 at 07:01 | Last modified: May 16, 2023 14:40

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:

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

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: 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.

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TTEK Stock Study (4-20-23)

Posted by on May 18, 2023 at 07:21 | Last modified: April 20, 2023 13:58

I recently did a stock study on Tetra Tech Inc. (TTEK) with a closing price of $140.77.

CFRA writes:

     > Tetra Tech, Inc. (TTEK) is a leading provider of consulting
     > and engineering services that focus on water, environment,
     > infrastructure, resource management, renewable energy, and
     > international development. TTEK typically begins at the
     > earliest stage of a project by identifying technical
     > solutions and developing execution plans tailored to
     > clients’ needs and resources. TTEK’s solutions may span
     > the entire life cycle of consulting and engineering
     > projects and include applied science, data analysis,
     > research, engineering, design, construction management,
     > and operations and maintenance.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 3.9% and 16.7% [’13 (d$0.03/share) and ’15 ($0.64/share) excluded to avoid artificial inflation of the growth rate]. Lines are mostly up, narrowing, and parallel except for sales dip in ’20 and the aforementioned EPS dip in ’15. PTPM has led peer and industry averages while trending up from 0.5% in ’13 to 10.0% in ’22 with a last-5-year average of 7.5%.

Over the last decade, ROE has also led peer and industry averages while trending up from 9.8% in ’14 (’13 was negative) to 21.5% in ’22 (last-5-year average: 17.5%). Having no long-term debt, Debt-to-Capital has been lower than peer and industry averages despite climbing from 17.2% in ’13 to 28.1% in ’22 with a last-5-year average of 26.8%.

From the latest quarter, Interest Coverage is 27.5 and Quick Ratio 1.2. Value Line assigns a B++ rating for Financial Strength.

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

I am forecasting just below the range.

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

I am forecasting toward the lower end of the long-term-estimate range (mean of three: 12.5%).

My Forecast High P/E is 27. Since ’14, high P/E has ranged from 18.6 (’14) to 43.5 (’15) with a last-5-year mean of 33.6 (9-year median = 30.7). Except for ’15, this has gradually been trending higher. I am forecasting at the last-5-year average P/E.

My Forecast Low P/E is 17. Since ’14, low P/E has ranged from 13.8 (’14) to 35.9 (’15) with a last-5-year average of 20.5. Except for ’15, this has gradually been trending higher. I am forecasting toward the lower end of the range [only ’14 and ’16 (16.1) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $98.60. This is 30.0% less than the previous close, 16.8% less than the 52-week low, and 3.5% above the 2021 low.

Since dividend was instituted in ’14, Payout Ratio has ranged from 17.4% in ’21 (excluding 8.4% in ’14) to 46.9% in ’15 with a last-5-year average of 18.5%. I am forecasting conservatively at 10%.

These inputs land TTEK in the HOLD zone with an U/D ratio of 1.9. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) is 5.4%, which is lower than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on [only] 41 studies done in the past 90 days (my study along with 15 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 5.5%, 10.0%, 29.6, 19.9, and 18.5%. I am lower on everything but sales growth. Value Line projects an average annual P/E of 23.5, which is less than MS (24.8) and higher than mine (22.0). MOS in the current study seems healthy.

With regard to other data, MS high and low EPS are $9.34/share and $5.59/share compared to my $8.13 and $5.80. My low EPS may be higher due to recent quarterly growth while my high EPS is lower due to a lower forecast growth rate. MS LSPF is $108.70 (10.2% higher than mine), which implies a Forecast Low P/E of 18.7. MS default LSPF is $5.80 * 19.9 = $115.42.

I would look to re-evaluate this stock under $128/share.

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BLK Stock Study (4-19-23)

Posted by on May 16, 2023 at 06:47 | Last modified: April 20, 2023 13:15

I recently did a stock study on Blackrock, Inc. (BLK) with a closing price of $694.03.

Value Line writes:

     > BlackRock, Inc., one of the world’s largest publicly traded
     > investment management firms, manages assets on behalf of
     > institutions and individuals worldwide through a variety of
     > equity and balanced, fixed income, cash management,
     > alternative investment and advisory products. Also offers
     > investment system, risk management, and financial advisory
     > services. Assets under management: $8.6 trillion as of
     > 12/31/22. Acquired Barclays Global Investors in ’09.

This large-size company has grown sales and EPS at annualized rates of 7.3% and 9.2%, respectively, over the last decade. Lines are mostly up, straight, and parallel with the exception of sales/EPS dips in ’16 and ’22 and an additional EPS dip in ’18 (probably due to TCJA). PTPM leads peer and industry averages despite trending somewhat lower from 39.0% in ’13 to 35.2% in ’22 with a last-5-year average of 39.1%.

ROE slightly trails industry and peer averages despite trending higher from 10.9% in ’13 to 13.7% in ’22 with a last-5-year average of 14.0%. Debt-to-Capital has been much lower than peer and industry averages with a last-5-year average of 16.3%.

BLK’s financial health looks very strong. Current and Quick Ratios exceed 13.0 and 7.5, respectively, and Interest Coverage exceeds 30.0. Value Line rates the company A+ for Financial Strength and M* gives an Exemplary rating for Capital Allocation.

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

I am forecasting conservatively.

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

I am forecasting below the long-term-estimate range (mean of six: 8.9%).

My Forecast High P/E is 18. Over the last 10 years, high P/E has ranged from 17.3 (’17) to 27.3 (’22) with a last-5-year average of 23.2. I am forecasting near the bottom of the range [only ’17 and ’19 (17.9) are lower].

My Forecast Low P/E is 12. Over the last 10 years, low P/E has ranged from 10.2 (’20) to 17.6 (’21) with a last-5-year average of 13.9. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $386.20. This is 44.4% less than the previous close and 23.2% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 33.2% in ’17 to 57.5% in ’22 with a last-5-year average of 47.7%. I am forecasting conservatively at 33%.

These inputs land BLK in the SELL zone with an U/D ratio of 0.2. Total Annualized Return (TAR) is 3.9%.

PAR (using Forecast Average—not High—P/E) is 0.7%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even that, though, is far less than I seek for a large-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 149 studies done in the past 90 days (54 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 7.0%, 7.7%, 20.7, 13.4, and 43.1%. I am lower across the board. Value Line projects a future average annual P/E of 18.0, which is higher than MS (17.1) and higher than me (15.0). MOS in the current study seems robust.

With regard to other data, MS high and low EPS are $49.22/share and $33.34/share compared to my $43.07 and $32.18. My high EPS is lower due to a lower forecast growth rate. MS LSPF is $450.20 (16.6% higher than mine). This is consistent with the default $33.34 * 13.4 = $446.75, which is exactly what I like to see.

I would look to re-evaluate this stock under $483/share.

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CTSH Stock Study (5-8-23)

Posted by on May 14, 2023 at 07:00 | Last modified: May 7, 2023 16:42

I recently did a stock study on Cognizant Technology Solns Corp. (CTSH) with a closing price of $63.29. A previous study on this company was done here.

M* writes:

     > Cognizant is a global IT services provider, offering consulting
     > and outsourcing services to some of the world’s largest
     > enterprises spanning the financial services, media and
     > communications, healthcare, natural resources, and consumer
     > products industries. Cognizant employs nearly 300,000 people
     > globally, roughly 70% of whom are in India, although the
     > company’s headquarters are in Teaneck, New Jersey.

Over the last 10 years, this large-size company has grown sales and EPS at annualized rates of 8.5% and 7.4%, respectively. Lines are mostly up and parallel except for a sales dip in ’20 and some rockiness in EPS (down in ’16, ’17, ’19, and ’20). PTPM has been above peer and industry averages despite trending down from 19.1% in ’13 to 15.5% in ’22 with a last-5-year average of 15.2%.

ROE trails peer and industry averages over the last decade ranging from 12.2% in ’20 to 21.7% in ’13 with a last-5-year average of 17.1%. Despite increasing from 0% in ’13 to 11.1% in ’22, Debt-to-Capital is far lower than peers and the industry with a last-5-year average of 11.3%. Interest Coverage is over 100, Quick Ratio is 1.87, M* gives a Standard rating for Capital Allocation, and Value Line gives an A+ grade for Financial Strength.

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

I am forecasting below both long-term estimates.

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

I am forecasting at the bottom of the long-term-estimate range (mean of six: 7.6%).

My Forecast High P/E is 21. Over the last 10 years, high P/E has ranged from 21.2 in ’22 to 32.2 in ’20 with a 5-year average of 24.4. I am forecasting just below the range.

My Forecast Low P/E is 11. Over the last 10 years, low P/E has ranged from 11.6 in ’22 to 20.4 in ’17 with a 5-year average of 15.5. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $49.50. This is 21.8% less than the previous close and 3.5% less than the ’22 low.

Since a dividend was issued in 2017, Payout Ratio has ranged from 17.8% in ’17 to 34.2% in ’20 with a last-5-year average of 25.8%. I am forecasting below the range at 17.0%.

These inputs land CTSH in the BUY zone with an U/D ratio of 3.7. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average–not High–P/E) is 7.7%, which is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 356 studies done in the past 90 days (my study along with 94 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 6.1%, 8.0%, 22.5, 16.0, and 17.9%. I am lower across the board. Value Line projects a future average annual P/E of 17.0, which is lower than MS (19.3) and higher than mine (16.0). MOS backing the current study seems robust.

With regard to other data, MS high and low EPS are $6.49/share and $3.69/share compared to my $5.46 and $4.50. The $4.50 may be higher due to recent quarterly growth. The $5.46 is lower due to a lower forecast growth rate. The MS LSPF of $51.30 is 3.6% greater than mine, is 13.1% less than the $3.69 * 16.0 = $59.04 default value, and implies a Forecast Low P/E of 13.9 (vs. 16.9).

I would look to BUY CTSH under $65/share.

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FLT Stock Study (5-4-23)

Posted by on May 13, 2023 at 07:15 | Last modified: August 2, 2023 13:07

I recently did a stock study on Fleetcor Technologies Inc. (FLT) with a closing price of $207.34.

Value Line writes:

     > FLEETCOR Technologies, Inc. is a leading independent provider of fuel
     > cards, and payment products and services throughout North America,
     > Latin America, and Europe. Its corporate charge cards cater to
     > commercial fleets, major oil companies, petroleum marketers, and
     > government entities. The company owns and operates proprietary
     > closed-loop networks electronically connected to merchants, through
     > which it captures and reports customized information.

This medium-size company has grown sales and earnings at annualized rates of 13.6% and 15.5%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’15 and ’20. PTPM has led peer and industry averages, ranging from 31.5% (’15) to 45.1% (’13) with a last-5-year average of 39.8%.

ROE has tracked evenly with the industry and ahead of peer averages over the last decade, ranging from 12.0% (’15) to 41.1% (upside outlier, perhaps, in ’22) with a last-5-year average of 26.4%. Debt-to-Capital has trended uncomfortably higher from 54.4% to 73.5% over this time span with a last-5-year average of 62.8%. This is greater than industry averages and roughly even with peers.

Interest Coverage is 8.8 or 13.8 according to M* and Value Line, respectively. The latter reports Quick Ratio as 0.58. Value Line gives a B++ grade for Financial Strength while CFRA writes, “balance sheet is in a good place at 2.8x net debt-to-EBITDA with healthy liquidity of ~$2B.”

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

I am forecasting at the bottom of 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 five: 12.2%).

My Forecast High P/E is 21. Over the last decade, high P/E has ranged from 21.4 (’22) to 43.0 (’15) with a last-5-year average of 29.9. I am forecasting below the range.

My Forecast Low P/E is 13. Over the last decade, low P/E has ranged from 13.0 (’22) to 34.9 (’15) with a last-5-year average of 18.3. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default value of $161.50. This is 22.1% below the last closing price and 20 cents less than 2022 and 52-week lows.

These inputs land FLT in the BUY zone with an U/D ratio of 4.2. The Total Annualized Return (TAR) is 14.1%.

PAR (using Forecast Average—not High—P/E) is 9.4%, which is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 373 studies done in the past 90 days (91 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 10.0%, 11.9%, 25.0, and 17.3. I am lower across the board. Value Line projects a future average annual P/E of 14.5, which is lower than MS (21.2) and lower than mine (17.0). The latter leaves me perplexed since I can count on one hand the number of times Value Line has projected a much lower average annual P/E. This somewhat neutralizes my perception of MOS in the current study.

With regard to other data, MS high and low EPS are $21.75/share and $11.41/share compared to my $19.11 and $12.42. My high EPS is lower due to a lower forecast growth rate and my low EPS is probably higher due to the most recent quarterly growth. The MS LSPF of $167.00 implies a Forecast Low P/E of 14.6 (vs. 17.3), is 3.4% higher than mine, and is 15.4% less than the default value of $11.41 * 17.3 = $197.39.

FLT is a BUY under $221/share, but due to the concern over future P/E range I am lowering that to $210.

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TGT Stock Study (4-19-23)

Posted by on May 12, 2023 at 06:54 | Last modified: April 19, 2023 14:56

I recently did a stock study on Target Corp. (TGT) with a closing price of $162.40.

CFRA writes:

     > Incorporated in 1902 and headquartered in Minneapolis, Target
     > Corporation is one of the largest retailers in the U.S. As of
     > January 29, 2022, the company operated 1,926 Target locations
     > in the U.S. with 243.3 million square feet of floor space, up
     > from 1,897 stores with 241.6 million square feet of floor
     > space twelve months earlier. Target currently has stores in
     > all 50 states and the District of Columbia. Its stores
     > generally cater to middle- and upper-income consumers,
     > carrying a broad assortment of fashion apparel, electronics,
     > home furnishings, household products, and other general
     > merchandise. Target.com offers a more extensive selection of
     > merchandise than the company’s physical stores, including
     > exclusive online products.

This mega-sized company (revenue > $50B) has grown sales and earnings at annualized rates of 4.9% and 11.9% over the last 10 years, respectively. Lines are mostly up except for dips in sales (’16) and EPS (’16 and ’22). PTPM led peer and industry averages throughout the decade despite a horrible ’22 contributing to a last-5-year average of 5.5%.

ROE also led peer and industry averages over the last 10 years, increasing from 12.0% (’13) to 25.0% in ’22 and posting a last 5-year average of 31.9%. Debt-to-Capital was higher than industry averages, increasing from 45.9% (’13) to 62.9% (’22) with a last-5-year average of 55.7%. Quick Ratio is chronically low (0.20 in the last quarter), but Interest Coverage is 8.2. Value Line gives a B++ rating for Financial Strength while M* assigns an Exemplary rating for Capital Allocation.

With regard to the EPS dip [crash: down 57.6% YOY] in ’22, Value Line writes:

     > Followers of this story will recall that the bottom line last year
     > was torpedoed when management announced a serious inventory
     > bloat would be worked down by across-the-board discounting.
     > Shortly thereafter, a clearance run event was held to get
     > shoppers to spend at the tail end of the holiday season, thus
     > again clearing inventory space for items geared toward warmer
     > weather. The end result was a sharp drop in profitability and
     > a full-year earnings figure of just $5.98 a share.

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

I am forecasting conservatively.

I forecast 14% long-term annualized EPS growth based on the following:

I am suspicious when I see a big YOY change accompanied by diametrically-opposed estimates like we have here. The opposing long-term estimates are d4.9% (“d” signifies a negative number) and d7.5% vs. 25.1% and 14.9%. I assume the time frames to be identical, but what if they’re not?

Value Line illustrates this clearly. Year-by-year EPS for TGT is $13.56 in ’21 (actual), $5.98 in ’22 (actual), $8.50 in ’23 (projected), and $10.60 in ’24 (projected). A 2-year projected growth rate is either d33.6% or 33.1% depending on whether I start from ’21 or ’22. Both numbers are “projected” since the 2-year interval carries into the future.

Since Target’s fiscal year ends in January, I must be clear on how the different data sources are labeling in order to ensure valid comparisons. Zacks and Nasdaq.com label “current year” as 1/24. MarketWatch says “TGT will report 2024 earnings on 02/28/2023,” which is complete nonsense [should be 2022 not 2024], and lists ’23 as the first year of data without stating whether that is actual or projected. CNN Business labels ’23 and ’24 with “analyst forecast” and ’22 with “reported earnings.” Furthermore, with CNN Business and MarketWatch both reporting FactSet data and the latter’s ’25 number equal to the former’s ’24, I can apply deduction to clarify. CFRA labels ’24 and beyond as “estimated” and indicates Jan as FY end [as an aside, based on the CFRA quarterly EPS matrix with the full year summed in the rightmost column, the 3-year projected CAGR must go from $13.56 in ’22 to $11.48 in ’25 to get d5.4% or d5% rounded. This is one year of historical data and two years projected, which makes “3-year projected CAGR” somewhat of a misnomer]. Value Line includes a footnote stating “Fiscal year ends Sat. nearest Jan. 31st of following cal. year.” This announces the FY ending in ’23 will be labeled as ’22 (the bold font is also helpful to indicate projected versus actual data).

Unfortunately, YF and Seeking Alpha do not specify the long-term projection interval. I would normally assume this, but with two alarmingly negative estimates I want to be sure. Seeing MarketWatch and Nasdaq.com project significant gains one, two, and three years ahead along with Value Line’s $18.30 projection for ’26-’28, it seems nearly impossible for YF and Seeking Alpha to have negative long-term estimates unless they have indeed slid the time interval back one year to begin with $13.56. This would be in error with the next completed FY available, but I cannot prove it.

What I therefore have are six long-term estimates with a mean of 6.9% per year [13.4% with the negative estimates excluded]. I am nearly cutting that in half [4%] due to the uncertainty, and I absolutely do not feel comfortable with my common practice of forecasting below the range since I feel something is amiss.

So why did I enter 14% EPS growth when I am actually forecasting 4%?

My Forecast High P/E is 16. Over the last 10 years, high P/E has ranged from 14.8 (’17) to 42.6 (upside outlier in ’22) with a last-5-year average (excluding the outlier) of 19.8. I am forecasting near the bottom of the range (only ’17 is lower).

Since data sources are clear in projecting a rebound over the next couple years, I am overriding projection from the last annual EPS ($5.98/share) to the trendline ($9.52/share). Failure to do this would result in a projected high future price less than the current stock price [INVALID]. The override results in $11.58/share and is roughly equivalent ($11.51/share) to projecting from the last annual EPS with a 14% per year growth rate. In an attempt to be consistent with other stock studies, I am substituting the latter.

My Forecast Low P/E is 11. Over the last 10 years, low P/E has ranged from 9.1 (’17) to 22.9 (’22). Low P/E has been lower than 14.2 in every year since ’14, which makes the 22.9 somewhat of an upside outlier. Excluding that, the last-5-year average is 11.0.

I cannot leave the TTM EPS default as the projection point since it exceeds the high EPS. I will override to the $9.52 trendline, which basically implies zero growth over the next five years.

My Low Stock Price Forecast (LSPF) is the default value of $104.70. This is 35.5% less than the previous close and 23.7% less than the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 22.4% (’21) to 66.2% (’22). The last-5-year average is 41.3%. I am forecasting conservatively at 25.0%.

These inputs land TGT in the HOLD zone with an U/D ratio of 0.4. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) is 1.0%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 4.1% instead. Even that, though, is far less than I seek for a large-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 146 studies done in the past 90 days (my study along with 87 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 4.3%, 7.1%, 18.5, 11.0, and 40.6%. I am lower on projected sales growth and Payout Ratio. My Forecast Low P/E is equal and my Forecast High P/E is lower.

Other MS studies may or may not have applied the manual override, which I did in conjunction with the 14% projected EPS growth. MS high and low EPS [can help to clarify this and] are $9.18/share and $7.22/share compared to my $11.51 and $9.52. Even if my P/E range is a bit lower, my EPS range is higher thereby nullifying any MOS this study may have had.

MS LSPF of $86.50 (17.4% lower than mine) is about 10% higher than the default $7.22 * 11.0 = $79.42 and implies a Forecast Low P/E of 12.0.

TGT strikes me as somewhat of a mess right now! I would await prices under $124/share to re-evaluate. As time passes and we get a better picture of the company’s recovery, hopefully more certainty will resurface as well.

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DG Stock Study (4-18-23)

Posted by on May 10, 2023 at 06:22 | Last modified: April 18, 2023 09:56

I recently did a stock study on Dollar General Corp. (DG) with a closing price of $213.52.

M* writes:

     > A leading American discount retailer, Dollar General operates
     > over 18,000 stores in 47 states, selling branded and private-
     > label products across a wide variety of categories. In fiscal
     > 2021, 77% of net sales came from consumables (including paper
     > and cleaning products, packaged and perishable food, tobacco,
     > and health and beauty items), 12% from seasonal merchandise
     > (such as toys, greeting cards, decorations, and gardening
     > supplies), 7% from home products (for example, kitchen
     > supplies, small appliances, and cookware), and 4% from
     > apparel. Stores average roughly 7,400 square feet, and about
     > 75% of Dollar General locations are in towns of 20,000 or
     > fewer people. The firm emphasizes value, with most of its
     > items sold at everyday low prices of $5 or less.

This large-size company has grown sales and EPS at annualized rates of 9.1% and 16.1%, respectively, over the last decade. Lines are up, straight, and parallel except for an EPS dip in ’21. PTPM has led peer and industry averages while posting a last-5-year average of 8.6%.

Also beating peer and industry averages over the last 10 years is ROE. ROE has trended higher from 19.1% in ’13 to 39.2% in ’22 with a last-5-year average of 32.7%. Debt-to-Capital was lower than peer and industry averages until ’19 when it spiked higher and continues to increase. The last-5-year average is an uncomfortably high 61.4%. Despite a Quick Ratio of only 0.09, Interest Coverage is 15 and Value Line gives an A rating for Financial Strength.

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

I am forecasting below the range.

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

I am forecasting below the long-term-estimate range (mean of six: 9.3%).

My Forecast High P/E is 19. High P/E has trended higher over the last 10 years from 19.9 in ’13 to 24.6 in ’22 with a last-5-year average of 22.9. I am forecasting near the bottom of the range (only 18.8 in ’17 is lower).

My Forecast Low P/E is 14. Over the last 10 years, low P/E has ranged from 11.7 (’17) to 17.2 (’22) with a last-5-year average of 15.3. I am forecasting near the bottom of the range [’13 (13.7), ’17, and ’20 (11.8) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $139.50. This is 30.0% below the previous close, 18.4% less than the 52-week low, and 13.8% less than the ’21 low.

Since a dividend was first issued in ’15, Payout Ratio has ranged from 13.6% in ’20 to 22.6% in ’16. I am forecasting below the range at 13%.

These inputs land DG in the HOLD zone with an U/D ratio of 1.1. Total Annualized Return (TAR) is 6.6%.

PAR (using Forecast Average—not High—P/E) is 3.8%: too low for a large-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 277 studies done in the past 90 days (83 outliers removed including the current study), 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%, 9.9%, 21.3, 14.3, and 18.4%. I am lower across the board. Value Line projects a future average annual P/E of 20, which is higher than MS (17.8) and me (16.5).

With regard to other data, MS high and low EPS are $16.80/share and $9.87/share compared to my $14.98 and $10.68. My low EPS may be higher due to recent quarterly growth while my high EPS is lower due to a lower forecast growth rate. MS LSPF is $146 (4.7% higher than mine). This is close to the default $9.87 * 14.3 = $141.14 [yay!].

With a robust MOS backing this study, I would look to re-evaluate under $183/share.

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ADBE Stock Study (5-3-23)

Posted by on May 9, 2023 at 07:20 | Last modified: May 3, 2023 09:59

I recently did a stock study on Adobe Inc. (ADBE) with a closing price of $368.66. The previous study I did on ADBE is here.

CFRA writes:

     > Adobe (ADBE) is the largest provider of applications used
     > to produce visual content, best known for its Creative
     > Cloud apps, Photoshop (#1 in photo editing, raster
     > graphics), Illustrator (#1 in drawing, vector graphics),
     > InDesign (#1 in page layout), and Premiere Pro (#1 in
     > video editing). Its apps are used by graphic designers,
     > photographers, publishers, video producers, animators,
     > and other creative professionals… ADBE’s apps are also
     > used by students, hobbyists, and part-time artists.

This large-size company has grown sales and EPS at annualized rates of 19.7% and 35.7% per year since 2013 and 2015 (previous two years of fractional EPS excluded), respectively. Lines are up, mostly straight, and parallel with the exception of an EPS dip in ’21 and nearly flat YOY EPS in ’22. PTPM over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 8.8% in ’13 to 34.1% in ’22 with a last-5-year average of 32.5%.

ROE over the last 10 years is roughly equal to the industry and just less than peer averages increasing from 4.1% in ’13 to 32.7% in ’22 with a last-5-year average of 33.4%. Debt-to-Capital has been less than peer and industry averages going from 18.4% in ’13 to 24.8% in ’22 with a last-5-year average of 26.8%. Interest Coverage and Quick Ratio are 53.3 and 1.0, respectively. M* rates the company Exemplary for Capital Allocation while Value Line gives an A+ rating for Financial Strength.

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

I am forecasting below the long-term-estimate range.

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

I am forecasting below the long-term-estimate range (mean of six: 14.2%).

My Forecast High P/E is 35. High P/E has ranged from 47.9 (’16) to 141 (’14) over the last 10 years with a last-5-year average of 58.4. I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 23. Low P/E has ranged from 23.6 (’20) to 102 (upside outlier in ’14) with a last-5-year average of 31.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $233.50. This is 36.7% less than the previous closing price and 15.0% less than the 52-week low.

These inputs land ADBE in the HOLD zone with an U/D ratio of 1.7. The Total Annualized Return (TAR) is 10.2%. PAR (using Forecast Average—not High—P/E) is 6.1%. 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 565 studies done in the past 90 days (104 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 12.0%, 12.8%, 42.0, and 28.9. I am lower across the board. Value Line projects a future average annual P/E of 34.0, which is lower than MS (35.5) and higher than mine (29.0). MOS seems robust.

With regard to other data, MS high and low EPS are $18.64/share and $10.12/share compared to my $17.10 and $10.15. My high EPS is lower due to a lower forecast growth rate. The MS LSPF of $274.70 implies a Forecast Low P/E of 27.1 (vs. 28.9), is 6.4% less than the $10.15 * 28.9 = $293.34 default value, and is 15.0% higher than mine.

I would look to re-evaluate the stock under $324/share.

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QLYS Stock Study (4-17-23)

Posted by on May 8, 2023 at 06:38 | Last modified: April 17, 2023 14:37

I recently did a stock study on Qualys Inc. (QLYS) with a closing price of $128.55.

M* writes:

     > Qualys Inc. is a cloud security and compliance solutions
     > provider that helps businesses identify and manage their
     > security risks and compliance requirements. The California-
     > based company has more than 10,000 customers worldwide,
     > the majority of which are small- and medium-sized businesses.

Over the last 10 years, this small-size company has grown sales and EPS at annualized rates of 17.8% and 16.3% [my gut instinct is to exclude fractional EPS years of ’13, ’15, and ’16 that, if included, would inflate the annualized rate to 38.6%. Whether this is reasonable is a separate topic for discussion]. Lines are mostly up, straight, and parallel except for EPS spike in ’14 along with EPS dips in ’15 and ’21. PTPM generally trails industry averages but leads negative and declining peer averages [corrupt data, perhaps?] in rallying from 2.0% in ’13 to 27.3% in ’22 with a last-5-year average of 24.4%.

Over the last decade, ROE has also been lower than industry averages while leading peers in rallying from 1.6% in ’13 to 29.3% in ’22 with a last-5-year average of 20.2%. Having no long-term debt, Debt-to-Capital has been much lower than peers and lower than the industry, averaging 0.5% over the last five years (uncapitalized leases).

M* gives a “Standard” Capital Allocation rating while Value Line assigns a B+ for Financial Strength. Quick Ratio is 1.26.

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

I am forecasting conservatively.

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

I am forecasting just below the long-term-estimate range (mean of three: 7.9%).

I don’t give much weight to the shorter-term estimates but I do find CFRA’s upside outliers to be suspicious especially since they report 16 analysts. This is a huge spike and would doubtless command an outsized P/E.

My Forecast High P/E is 45. The lowest high P/E over the last 10 years was 50.3 in ’14. The last-5-year average is 65.9. The top of my comfort zone is closer to 30, but that results in an invalid (lower than previous close) projected high stock price.

Being a small company, perhaps QLYS still has years of supersized P/E remaining. I’ll have to watch this closely.

The current P/E is 46.6. I will discount that to the nearest 5-multiple as my Forecast High P/E. With 53.1 as the last-5-year average P/E, I could argue this as conservative.

My Forecast Low P/E is 28. The lowest low P/E over the last 10 years was 22.2 in ’14. The last-5-year average is 40.3. I am forecasting near the low end of the range (only ’14 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.30. This is 39.9% less than the previous close, 23.5% less than the 52-week low, and 14.4% less than the 2021 low.

These inputs land QLYS in the HOLD zone with an U/D ratio of 0.6. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) is -0.1%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on total annualized return instead. Even that, though, is far less than I seek for a small-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 184 studies done in the past 90 days (my study along with 48 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 12.0%, 54.4, and 35.7. I am lower across the board. MOS in this study seems robust.

With regard to other data, MS high and low EPS are $4.83/share and $2.51/share compared to my $3.50 and $2.76. My low EPS may be higher due to recent quarterly growth while my high EPS is lower due to a lower forecast growth rate. MS LSPF is $87.60 (13.3% higher than mine). This is WAY higher than the default $4.83 * 54.4 = $262.75. $87.60 actually implies a Forecast Low P/E of 18.1.

I would look to re-evaluate this stock under $97/share.

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