AEIS Stock Study (2-23-23)

I recently did a stock study on Advanced Energies Industries Inc. (AEIS) with a closing price of $92.45.

Value Line writes:

     > Advanced Energy Industries, Inc. develops and produces power
     > conversion and control systems that are used by manufacturers
     > of semiconductors and in industrial thin-film manufacturing
     > processes. The largest customer is Applied Materials,
     > accounting for approximately 20% of total sales in 2021.

Over the last 10 years, this medium-sized company has grown sales and earnings at annualized rates of 16.4% and 17%, respectively. Lines are mostly up while displaying some cyclicality (’14 sales not exceeded until ’17 and ’18 EPS not exceeded until ’22 with ’19 and ’21 showing YOY declines). PTPM over the last 10 years traces an inverse-U shape while trending slightly higher from 2.6% in ’13 to 13.1% in ’22. The last-5-year average is 13.4%, which beats peer and industry averages.

The historical ROE profile is similar, going from 7.7% in ’13 to 20.2% in ’22. The last-5-year average is 17.2%, which is roughly on par with peer and industry averages (both of which show a 2016 excursion below -400%). Debt-to-Capital was zero before ’19 and has averaged 35.6% in the last four years since FASB Accounting Standards Update 2016-02 [requires leases to be recorded on the balance sheet]. This is lower than peer and industry averages. Quick Ratio is 1.93.

CFRA writes, “AEIS’s balance sheet is in a good spot, with $459M in cash, net cash of $69M, and low leverage (debt-to-EBITDA of 1.2x). AEIS has no debt maturities until September 2024.”

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

• CNN Business projects a 5.6% YOY contraction and zero growth for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 8.8% contraction and 8.4% growth for ’23 and ’24, respectively (8).
• Zacks projects YOY 4.4% contraction and 5.7% growth for ’23 and ’24, respectively (3).
• Value Line projects 8.6% annualized growth from ’21-’26.
• CFRA projects 8.6% YOY contraction and annualized contraction of 0.1% for ’23 and ’22-’24, respectively.

With only one longer-term estimate and unknown recovery mechanics after ’23, I am forecasting a bit light.

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

• CNN Business projects a 28.8% YOY contraction and 3.7% contraction per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 2.9% annualized contraction and 14.2% annualized growth for ’22-’24 and ’22-’25 (9 analysts).
• Nasdaq.com projects 23.2% YOY growth for ’24 (4).
• Seeking Alpha projects 4-year annualized growth of 28.3%.
• YF projects YOY 28.8% contraction and 30.1% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 10%.
• Zacks projects 25% YOY contraction and 21.2% YOY growth for ’23 and ’24, respectively (4).
• Value Line projects annualized growth of 12.8% from ’21-’26.
• CFRA projects 27.7% YOY contraction and annualized contraction of 3.1% for ’23 and ’22-’24, respectively, along with 3-year CAGR of 18%.

The four longer-term estimates average 16%. With 12.8% being the low end of the range, I’d like to use 12% but I’m going even lower since ’22 was up 39% YOY (especially given a sales growth projection of only 6%).

My Forecast High P/E is 22. Over the last 10 years, high P/E has ranged from 14.8 (’15) to 49.2 (upside outlier in ’19) with a last-5-year average (excluding the outlier) of 26.2. Four out of the last 9 years have high P/E less than my forecast.

My Forecast Low P/E is 12. Over the last 10 years, low P/E has ranged from 8.3 (’16) to 27.7 (’19) with a last-5-year average of 16.7. Four out of the last 10 years have low P/E less than my forecast.

My Low Stock Price Forecast is $64.30 (default): 30.4% beneath the previous close and 4.7% less than the 52-week low.

The dividend history is only two years with Payout Ratios of 11.4% and 7.5%. I am forecasting 7%.

These inputs land AEIS in the BUY zone with an U/D ratio of 3.4. The Total Annualized Return (TAR) is 15.8%.

TAR would be a stellar return for a medium-sized company, but margin of safety (MOS) determines whether I can believe in that or need to settle for PAR (using Forecast Average, not High, P/E) 10.1% as my future expectation.

Looking at Member Sentiment (MS), out of only 22 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.6%, 16.2%, 22.8, 13.5, and 5.4%, respectively [MS is really buying into increasing profit margins (EPS growth > sales growth)!]. My forecasts are lower for all inputs except Payout Ratio. Many people don’t think the dividend will continue. Value Line projects an average annual P/E of 18, which is just below MS (18.2) and slightly above mine (17).

My Low Stock Price Forecast is in line with MS ($64.13). Overall, MOS seems robust in this study.

AEIS is a competitor of MKSI on which I have previously done a First Cut. If I can believe in the semiconductor recovery [yes!], then I can definitely believe in this stock.

Agilent Stock Study (2-22-23)

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $143.42.

M* writes:

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

Since 2015, this medium-sized company has grown sales and earnings at annualized rates of 7.8% and 19.3%, respectively. Lines are mostly up and straight except for EPS declines in ’18 and ’20. Over the last 10 years (excluding ’17), PTPM has trended higher from 11.9% in ’15 to 22% in ’22 with a last-5-year average of 19.3%. This leads peer and industry averages.

ROE has also trended higher from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%. This is slightly ahead of peer and industry averages. Interest Coverage is 18 and Quick Ratio is 1.32. Value Line gives Agilent an A rating for Financial Strength and M* rates them Exemplary on Capital Allocation including “its sound balance sheet management.”

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

• CNN Business projects 2.9% YOY and 5% per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 2.3% and 7.2% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 1.6% and 7.2% for ’23 and ’24, respectively (5).
• Value Line projects 7.2% annualized from ’22-’27.
• CFRA projects 2.1% YOY and 5.3% per year for ’23 and ’22-’24, respectively.
• M* projects 6% annualized from ’22-’26 in analyst note and gives 2-year ACE of 4.9%.

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

• CNN Business projects 8.6% YOY and 9.9% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 11.6% and 11.7% per year for ’22-’24 and ’22-’25, respectively (18 analysts).
• Nasdaq.com projects 9.9% YOY and 10.5% per year for ’24 and ’23-’25 (8, 6, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 16%.
• YF projects YOY 8.2% and 11.7% for ’23 and ’24, respectively (14), along with 5-year annualized growth of 13.5%.
• Zacks projects YOY 8.6% and 9.7% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 10%.
• Value Line projects annualized growth of 11.9% from ’22-’27.
• CFRA projects 8.4% YOY and 10.2% per year for ’23 and ’22-’24, respectively, along with 3-year [NB: not a long-term estimate] CAGR of 31%.
• M* projects 9% annualized from ’22-’26 in its analyst note and gives long-term ACE of 9% as well.

I am forecasting at the low end of the [six] long-term estimate[s] range [mean 12.2%].

My Forecast High P/E is 32. Since ’15, High P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 39.1. I am projecting lower than all values except ’19.

My Forecast Low P/E is 23. Since ’15, Low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 24.5. I could go with 20 and project lower than all values except ’19 but instead, I am projecting lower than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast is the default $95.90. This is 33.1% below the previous closing price and 7.2% below the ’21 low.

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

These inputs land A in the HOLD zone with an U/D ratio of 1.3. The Total Annualized Return (TAR) is 8.1%.

With TAR a bit lower than I would like for a medium-sized company, PAR (using Forecast Average, not High P/E) is definitely too low at 5%. This is not a huge surprise with the stock up almost 79% over the last three years.

I like to add more context to my studies by comparing my inputs to Member Sentiment (MS). Out of only 30 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 6.3%, 9.4%, 34.2, 25.1, and 28.9%, respectively. I am lower on all inputs. My P/E range is more than two points lower, but Value Line projects an average annual P/E that is even lower at 25 (vs. 27.5). I don’t think margin of safety in this study is anything to write home about.

My Low Stock Price Forecast is a tad higher than MS $92.78. See my comments on this in the Forecast Low P/E section.

M* categorizes Agilent with a wide economic moat, which is an alluring reason to buy. If we can get a 15% stock selloff, then I’ll be in line to do just that.

TTC Stock Study (2-22-23)

I recently did a stock study on The Toro Co. (TTC) with a closing price of $111.22.

M* writes:

     > The Toro Co manufactures turf maintenance and landscaping equipment. The
     > company produces reel and rotary riding products, trim cutting and walking
     > mowers, greens rollers, turf sprayer equipment, underground irrigation
     > systems, heavy-duty walk-behind mowers, and sprinkler systems used for
     > professional turf and landscape maintenance and construction… The company
     > also produces snow plowers and ice management products.

This medium-sized company has grown sales and earnings at annualized rates of 8.8% and 13%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel without a single YOY decline. Over the last decade, PTPM has been stable ranging from 10.3% in ’19 to 14.2% in ’18 with a last-5-year average of 12.3%. This is roughly even with peer averages while leading industry averages.

ROE has trended slightly lower over the last decade going from 39.3% in ’13 to 34% in ’22 with a last-5-year average of 33.9%. This is dramatically better than peer and industry averages. Debt-to-Capital has been consistent with a last-5-year average of 40.9%. This is slightly higher than peer and industry averages. Interest Coverage is 16, which is reassuring, while Quick Ratio is a lukewarm 0.49. Value Line rates the company B++ for Financial Strength.

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

• CNN Business projects 11.1% YOY and 8.5% per year for ’23 and ’22-’24, respectively (based on 3 analysts).
• YF projects YOY growth of 10.2% and 7.1% for ’23 and ’24, respectively (4 analysts).
• Zacks projects YOY 11.1% and 8.4% for ’23 and ’24, respectively (1).
• Value Line projects 7.4% annualized from ’22-’26.
• CFRA projects 7.4% YOY and 7.4% per year for ’23 and ’22-’24, respectively.

I’m forecasting near the bottom of the range.

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

• CNN Business projects 16.9% YOY and 15.6% per year for ’23 and ’22-’24, respectively (based on 3 analysts), along with 5-year annualized growth of 10.2%.
• MarketWatch projects 16% and 15% per year for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 14.9% and 14.1% per year for ’23-’25 and ’23-’26, respectively (1).
• YF projects YOY 16.9% and 14.3% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 10.2%.
• Zacks projects YOY 17.9% and 15.2% for ’23 and ’24, respectively (1).
• Value Line projects annualized growth of 9.3% from ’22-’26.
• CFRA projects 14.8% YOY and 13.2% growth per year for ’23 and ’22-’24, respectively.

I am projecting below the average [of three] long-term estimate[s] (9.9%).

My Forecast High P/E is 21. Over the last 10 years, high P/E has ranged from 21.4 (’15) to 31.3 (’21) with a last-5-year average of 28.8. I expect this to cool down at some point.

My Forecast Low P/E is 15. Over the last 10 years, low P/E has ranged from 15.4 (’13) to 21.7 (’21) with a last-5-year average of 19.7. I expect this to fall as time goes on.

My Low Stock Price Forecast is the default value of $63.10. This is 43.2% below the previous closing price and 12.2% below the 52-week low.

The lowest Payout Ratio in the last 10 years was 21.4% (’13) and the last-5-year average is 31.4%. I am forecasting 26%, which is lower than nine of the 10 years.

These inputs land TTC in the HOLD zone with an U/D ratio of 0.9. The Total Annualized Return (TAR) is 7.2%.

With TAR being lower than I seek for a medium-sized company, the more-conservative PAR (using Forecast average, not High, P/E) will certainly be too low. It currently sits at 2.8%. A good margin of safety (MOS) will give me more confidence in this stock study even though it may not convince me to invest right now.

Member Sentiment (MS) reveals that out of [only] 37 studies over the past 90 days (my own excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 7.7%, 9.3%, 27.4, 19, and 30.5%, respectively. My inputs are all lower. My P/E range is significantly lower (mean 18.0 versus 23.2) although Value Line projects the same average annual P/E that I do.

MS has an average Low Stock Price Forecast of 72.6, which is 15% above mine. This would improve my U/D ratio, but I feel comfortable with the P/E range selected.

All in all, I appear to have at least a small margin of safety built into this study. I would look to re-evaluate (with a focus on PAR) the stock on a cross below $85/share.

FWRD Stock Study (2-21-23)

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $107.39.

M* writes:

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

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

ROE has trended higher over the last decade from 12.9% in ’13 to 27.8% in ’22 with a last-5-year average of 17.8%. This trails peer and industry averages. Debt-to-Capital has gone from 0% in ’13 to 28.2% in ’22 with a last-5-year average of 26%. This is lower than peer and industry averages.

Despite Interest Coverage of 58 and Quick Ratio at 1.64, Value Line gives FWRD a B++ for Financial Strength. To this analyst, that seems as bit low given Total Debt of $126M and TTM FCF of $199M but hey… I’ve only been doing this for five months.

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

• CNN Business projects 5% YOY contraction and flat growth for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY 1.6% contraction and 4.7% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 0.5% contraction and 1.8% growth for ’23 and ’24, respectively (3).
• Value Line projects 3.1% annualized growth from ’21-’27.
• CFRA projects 1.6% YOY contraction and 1.8% growth per year for ’23 and ’22-’24, respectively (6).

Given contraction being projected for ’23, I am forecasting low.

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

• CNN Business projects 9.2% YOY contraction and 0.3% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 8%.
• MarketWatch projects contraction of 12.7% YOY and 1.7% per year for ’23 and ’22-’24, respectively (9 analysts).
• Nasdaq.com projects annualized growth of 2.4% from ’23-’25 (5).
• Seeking Alpha projects 4-year annualized growth of 8%.
• YF projects YOY 10% contraction and 10.5% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 13.2%.
• Zacks projects YOY 3.3% contraction and 4.9% growth for ’23 and ’24, respectively (3).
• Value Line projects annualized growth of 7.4% from ’21-’27.
• CFRA projects 9.5% YOY contraction and 2.1% growth per year for ’23 and ’22-’24, respectively (8).

I am forecasting conservatively just below the long-term-estimate range [7.4% – 13.2%, mean 8.5%]. Despite the large discrepancy between sales and EPS growth rates, I think the latter impacts this analysis much more than the former.

My Forecast High P/E is 20. High P/E has gone up and down from 25.2 in ’13 to 17.6 in ’22 with a last-5-year average of 27.1. Only the ’22 value is lower than my projection.

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

My Low Stock Price Forecast is the default value of $78.50. This is 26.9% below the previous close, below the 52-week low of $84, and 9.6% above the ’21 low stock price.

Over the last 10 years, the lowest Payout Ratio was 13.4% in ’22. The last-5-year average is 23.4%. My estimate is toward the lower end of the range at 15%.

These inputs land FWRD in the BUY zone with an U/D ratio of 3.2. The Total Annualized Return (TAR) is 14%, but PAR (using Forecast Average, not High, P/E) is borderline low for me at 8.6%.

To assess margin of safety (MOS) in the study, I compare my inputs with those of Member Sentiment (MS). Out of 90 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 8.2%, 9.2%, 24.5, 16.8, and 26.3%, respectively. I am lower across the board. Value Line projects an average annual P/E of 23, which is higher than MS (20.7) and much higher than me (15.5).

The robust MOS gives me the confidence needed to base my decision on the more aggressive TAR [rather than PAR].

One puzzling detail is the lower Low Stock Price Forecast ($73.23) by MS despite a higher Forecast Low P/E (16.8 vs. 11). Perhaps TTM EPS was significantly different when MS studies were done. This is not indicated in the table.

SBUX Stock Study (2-20-23)

I recently did a stock study on Starbucks Corp. (SBUX) with a closing price of $107.10.

Value Line writes: “Starbucks Corp. is the leading retailer, roaster, and brand of specialty coffee in the world. Sells whole bean coffees through its specialty sales group, mail-order business, supermarkets, and online.”

This large-sized company has grown sales and earnings at annualized rates of 8% and 10.9% over the last 10 and nine years, respectively. The latter excludes ’13 (EPS of $0.01 artificially exaggerates historical growth rate) and ’20 (downside outlier due to COVID-19 that results in a 6.1% historical growth rate if included). Lines are mostly up and straight. Sales declined in ’20; EPS fell in ’19 and ’22.

Excluding ’13 and ’20, PTPM has trended slightly down over the years especially with 13.1% in ’22. The last-5-year average at 17.9% is better than industry averages but worse than the one listed peer: MCD.

ROE over the last five years has averaged 0.6% and has been [significantly] negative for the last three. ROE in 2021 was -61.4%. The industry average ROE has been negative four out of the last six years, though, so this is not atypical. Earnings are positive, which means shareholders’ equity must not be. I haven’t seen this before.

Debt-to-Capital increased from 22.5% in ’13 to 41.9% in ’17—all below peer and industry averages. This jumped to 89% in ’18 and has since been in triple-digit percentages and above peer and industry averages. Along with the negative ROE, this is a red flag for me. On the positive side, Interest Coverage is over 9, M* gives SBUX an Exemplary rating for Capital Allocation (including a “sound balance sheet” with “manageable debt load”), and Value Line gives an A++ rating for Financial Strength.

In looking at the 2021 10-K, long-term debt, operating lease liability, and deferred revenue are the largest balance-sheet contributions. As discussed here, the latter is a deal made in late ’18 that allows Nestle to market, sell, and distribute SBUX consumer packaged goods. SBUX was paid an upfront royalty of $6.7B that will be recorded as other revenue for 40 years. This means the deferred revenue liability will decrease by ~$175M per year for the next 38 years. As long as SBUX stays in business, said liability is basically not a concern [and without said liability, shareholders’ equity would be positive].

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

• CNN Business projects 11.1% YOY and 11.4% per year for ’23 and ’22-’24, respectively (based on 27 analysts).
• YF projects YOY 11.4% and 11.7% for ’23 and ’24, respectively (27 analysts).
• Zacks projects YOY 11.3% and 11.2% for ’23 and ’24, respectively (10).
• Value Line projects 8.3% annualized growth for ’22-’27.
• CFRA projects 12.3% YOY and 11.7% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year annualized estimate of 11.5% and estimates 9% per year through 2032 in its analyst report.

I am projecting toward the lower end of the range.

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

• CNN Business projects 14.5% YOY and 17.3% per year for ’23 and ’22-’24, respectively (based on 27 analysts), along with a 5-year annualized rate of 18%.
• MarketWatch projects annualized rates of 19.1% and 18.3% for ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects 19.6% YOY and 18.3% per year for ’24 and ’23-’25, respectively (13, 13, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 17.5%.
• YF projects YOY 14.9% and 20% for ’23 and ’24, respectively (29), along with a 5-year annualized rate of 18%.
• Zacks projects YOY 15.2% and 19.7% for ’23 and ’24, respectively (13), along with a 5-year annualized rate of 17.2%.
• Value Line projects 14.6% annualized growth from ’22-’27.
• CFRA projects 16.2% YOY and 17.1% per year for ’23 and ’22-’24 along with 3-year annualized growth of 43%.
• M* gives an annualized long-term ACE of 17.7% and projects 15% long-term growth in an analyst report.

I am forecasting less than all seven long-term estimates (mean: 16.9%).

The CFRA 3-year projection of 43% begs for some discussion. It’s obviously an extreme upside outlier. In these stock studies, I have the option of projecting from the last quarterly data point (default), previous completed annual data point, or trendline. I often wonder if the analysts make the same decision on their end. I wouldn’t default to a soft quarterly in thinking the slowdown to be isolated and transient. If I did, though, then an explosive growth rate would need to be implemented to catch up to the long-term trend. 43% suggests that CFRA may be using ’22 (-20.1% YOY) as a base in need of catch-up.

Unless stated otherwise, I assume analyst long-term projections to be based off the last data point available. If anyone out there disagrees, then please let me know!

My Forecast High P/E is 28. Excluding ’13 (7784) and ’20 (119), high P/E over the last 10 years has ranged from 19.1 in ’18 (possibly a downside outlier) to 41.6 in ’22 with a last-5-year average of 32.6. Excluding ’18, the lowest value was 30.4 (’14). I expect this to come down over time.

My Forecast Low P/E is 18. Excluding ’13 (4427) and ’20 (63), low P/E over the last 10 years has ranged from 14.6 in ’18 (possibly a downside outlier) to 27.7 in ’16 with a last-5-year average of 20.4. Excluding ’18, the lowest value was 18.7 (’19). I expect this to come down over time.

My Low Stock Price Forecast (LSPF) is $57.60. Rather than defaulting to the soft TTM EPS ($2.87), I am using the trendline $3.26 value. While this raises the LSPF from $51.7, the result is still [almost unreasonably low being] 46% below the previous closing price. The 2020 low stock price was $50.02, and the 52-week low is $68.40.

The lowest Payout Ratio in the last 10 years was 35.2% (’15) and the last-5-year average (excluding the upside outlier in ’20) is 52.1%. I am forecasting conservatively at 35%.

These inputs land SBUX in the HOLD zone with an U/D ratio of 1.0. The Total Annualized Return (TAR) is 8.9%.

I end up with a PAR (based on Forecast Average, not High, P/E) of 5%, which is less than I want to see.

How likely is performance to meet or exceed TAR?

To answer that, I compare my inputs with Member Sentiment (MS). Out of roughly 460 studies over the past 90 days (my own and numerous other studies excluded for invalid inputs including Payout Ratios over 1500% and Forecast Low P/E over 800), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.7%, 12.8%, 31.8, 22.8, and 61.2%, respectively. I’m lower on all inputs except EPS growth (14%). Value Line projects an average annual P/E of 26, which is lower than MS (27.3) and higher than mine (23).

MS average LSPF is $62.14, which is higher than mine. Anecdotally, this is reversed from most of my studies. This batch of MS data seems to have a lot of quirky data.

Although my study leans conservative, the stock remains hot enough to burn my tongue. I will wait for the price to cool under $82 before reevaluating the stock.

EFX Stock Study (2-17-23)

I recently did a stock study on Equifax Inc. (EFX) with a closing price of $213.00.

M* writes:

     > Along with Experian and TransUnion, Equifax is one of the
     > leading credit bureaus in the United States. Equifax’s credit
     > reports provide credit histories on millions of consumers,
     > and the firm’s services are critical to lenders’ credit
     > decisions. In addition, about a third of the firm’s revenue
     > comes from workforce solutions, which provides income
     > verification and employer human resources services.

This medium-sized company has grown sales and earnings at annualized rates of 9.3% and 7.6% over the last 10 years, respectively. This excludes ’19 for EPS: a downside outlier (-$3.30/share due to $1.13B in expenses from a 2017 cybersecurity incident). Lines are mostly up, straight, and parallel except for EPS dips in ’18 and ’22. PTPM was stable around 23% for ’13-’17 before diving in ’18-’19 and has been recovering since. The last-5-year average (excluding the outlier) is 16.1%, which beats peer and industry averages.

Historical ROE looks similar to PTPM with a last-5-year average of 16.5% (excluding ’19). This is lower than peer and industry averages. Debt-to-Capital has increased from 38.5% (’13) to 59.4% (’22) with a last-5-year average of 55.9%. Interest Coverage is 6.5 and Quick Ratio is 0.54. While these may raise some concern, Value Line rates the company A for financial strength and M* describes the balance sheet as “sound” while awarding an Exemplary rating for capital allocation.

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

• CNN Business projects 3.9% YOY and 7.6% per year for ’23 and ’22-’24, respectively (based on 19 analysts).
• YF projects YOY 3.9% and 10.1% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 4.2% and 9.2% for ’23 and ’24, respectively (10).
• Value Line projects 6.4% annualized growth from ’21-’27.
• CFRA projects 3.9% YOY and 6.7% per year for ’23 and ’22-’24, respectively (6).
• M* gives a 2-year ACE of 7.7% annualized while also estimating 9% per year for the next five years in its analyst report.

I am projecting toward the low side.

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

• CNN Business projects a 4.6% YOY contraction and 9.6% growth per year for ’23 and ’22-’24, respectively (based on 19 analysts) along with 5-year annualized growth of 10.1%.
• MarketWatch projects annualized growth of 9.8% and 10.2% for ’22-’24 and ’22-’25, respectively (22 analysts).
• Nasdaq.com projects annualized growth of 23.6% and 20% for ’23-’25 and ’23-’26, respectively (10, 6, and 3 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 9.7%.
• YF projects YOY 5% contraction and 26.3% growth for ’23 and ’24, respectively (16), along with 5-year annualized growth of 12.7%.
• Zacks projects YOY 3.4% contraction and 24.4% growth for ’23 and ’24, respectively (15), along with 5-year annualized growth of 14.4%.
• Value Line projects annualized growth of 7.1% from ’21-’27.
• CFRA projects 3.7% YOY contraction and 12.2% growth per year for ’23 and ’22-’24, respectively (7), along with 16% growth per year from ’21-’24.
• M* projects an annualized long-term growth rate of 12.8%.

I am projecting below the average [of six] long-term estimate[s] (11.1%).

My Forecast High P/E is 35. Excluding NMF in ’19, high P/E has trended up from 25.9 (’13) to 52.2 with a last-5-year average of 51.1.

My Forecast Low P/E is 25. Excluding ’19, low P/E has trended up from 19.6 (’13) to 25.8 (22) with a last-5-year average of 28.2.

My Low Stock Price Forecast is the default $141.30: just below the 52-week low of $146 and 33.7% below the previous close.

The lowest Payout Ratio in the last 10 years (excluding ’19 when the dividend was suspended due to one-time expenses) was 25.9% (’21) and the last-5-year average is 38.4%. I am estimating conservatively at 25%.

These inputs land EFX in the HOLD zone with an U/D ratio of 1.1. The Total Annualized Return (TAR) is 7.1%.

TAR is less than I want for a medium-sized company, which means the more conservative PAR (using Forecast Average, not High, P/E) will certainly be too low. The latter currently sits at 4%.

I like to assess margin of safety by comparing my inputs with Member Sentiment (MS). Out of [only] 22 studies over the past 90 days (my own excluded), projected sales, projected EPS, forecast High P/E, forecast Low P/E, and Payout Ratio average 6.3%, 11%, 34.1, 23.3, and 36.3%, respectively. My P/E range is actually higher than MS although my EPS growth rate is lower. Value Line projects an average annual P/E of 25, which is lower than MS (28.7) and much lower than mine (30).

M* writes:

     > …we are maintaining our fair value estimate of $315. This equates to a
     > 2023 price/adjusted earnings ratio of approximately 43 times and a 2024
     > price/adjusted earnings ratio of approximately 31 times. While these
     > multiples might seem high, we believe they are warranted, given Equifax’s
     > unique position in income and employment verification services.

I don’t agree that the premium is warranted, but I have somehow ended up assigning one anyway. Lowering my P/E range would move EFX even farther from the Buy zone.

I’ve done 82 stock studies to date and never been higher with my forecast P/E range. That this happened at all makes me want to scrap the whole study even though I felt the forecasts were conservative when I chose them.

I will repeat this again next quarter.

ASGN Stock Study (2-16-23)

I recently did a stock study on ASGN Inc. (ASGN) with a closing price of $92.72.

M* writes:

     > ASGN Inc is a provider of information technology (IT) services
     > and professional solutions, including technology, creative,
     > and digital, across the commercial and government sectors.

This medium-sized company has grown sales and earnings at annualized rates of 12.6% and 19.5% over the last 10 years. Lines are mostly up, straight, and parallel except for dips in EPS (’15) and sales (’20). PTPM has increased from 5.7% (’13) to 7.9% (’22) with a last-5-year average of 6.9%. This is slightly higher than peer averages while trailing the industry.

ROE has increased from 8.9% (’13) to 13.8% (’22) with a last-5-year average of 13.2%. Again, this is slightly better than peer averages while trailing the industry. Debt-to-Capital has averaged 43% over the last five years, which is slightly higher than peer averages and much lower than the industry. Interest Coverage is 10 and Quick Ratio is 2.21. Value Line gives APD a B+ for financial strength.

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

• CNN Business projects 2.2% YOY and 4.3% per year for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY growth of 3.4% and 5.4% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 2.4% and 5.9% for ’23 and ’24, respectively (3).
• Value Line projects 8.4% annualized from ’21-’26.
• CFRA projects 3.2% YOY and 4.2% per year for ’23 and ’22-’24 (6).
• M* gives a 2-year annualized estimate of 3.4%.

This is admittedly not a conservative forecast. I am projecting sales to pick up after the next couple years.

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

• CNN Business projects a 3.5% YOY contraction and 5.1% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 10.9%.
• Nasdaq.com projects 13.4% YOY growth for ’24 (3 analysts).
• Seeking Alpha projects 5-year annualized growth of 10.3%.
• YF projects YOY 3.7% contraction and 14.4% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 10.9%.
• Zacks projects YOY 3.7% contraction and 13.5% growth for ’23 and ’24, respectively (3), along with 5-year annualized growth of 10.9%.
• Value Line projects annualized growth of 10.9% from ’21-’26.
• CFRA projects growth of 23.4% YOY and 17.9% per year for ’23 and ’22-’24, respectively (7).

I am projecting below the entire range of five long-term estimates (mean 10.8%).

My Forecast High P/E is 22. High P/E has ranged from 22.1 (’17) to 37.8 (’15) with a last-5-year average of 26.5. It seems to be trending lower. I am projecting just below the range.

My Forecast Low P/E is 14. Low P/E has ranged from 7.7 (downside outlier in ’20) to 22.7 (’15) with a last-5-year average (excluding ’20) of 16.5. It also seems to be trending lower. Only the outlier is less than my projection.

My Low Stock Price Forecast is the default $72.80. This is 21.5% below the previous closing price and below ’21 and ’22 lows.

These inputs land ASGN in the BUY zone with an U/D ratio of 3.8. The Total Annualized Return is 12.7%.

PAR (using forecast average, not high, P/E) is lower than I would like for a medium-sized company at 8.2%. A good margin of safety (MOS) might be the additional convincing I need to buy this stock.

To evaluate MOS, I compare my inputs with Member Sentiment (MS). Out of 71 studies over the past 90 days (my own and one other with invalid Low Stock Price Forecast excluded), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 8.3%, 9.4%, 23.4, and 15, respectively. I’m slightly lower on all inputs. Value Line projects an average annual P/E of 20, which is slightly higher than MS (19.2) and higher than mine (18). All this amounts to the presence of at least some MOS in this study.

MS Low Stock Price Forecast is $61.07. While 12% lower than mine, my Forecast Low P/E is lower. The stock was ~17% lower six weeks ago and 59 of the MS studies were done in those first seven weeks, which might help explain this finding.

Despite the MOS, I am going to wait for slightly lower prices in hopes of seeing a better PAR.

APD Stock Study (2-18-23)

I recently did a stock study on Air Products and Chemicals Inc. (APD) with a closing price of $281.49.

M* writes:

     > Since its founding in 1940, Air Products has become one of the
     > leading industrial gas suppliers globally, with operations in
     > 50 countries and 19,000 employees. The company is the largest
     > supplier of hydrogen and helium in the world. It has a unique
     > portfolio serving customers in a number of industries, including
     > chemicals, energy, healthcare, metals, and electronics.

This large-sized company has grown sales and earnings at annualized rates of 0.8% and 8.9% over the last 10 years, respectively. Sales had a long period of flat time (from ’14-’21) while EPS was only down in ’14 and ’17-’18. Over the last 10 years, PTPM trended higher from 13.3% to 21.7% with a last-5-year average of 24.3%. This leads peer and industry averages. ROE was 15.3% in ’13 and has averaged 15.4% over the last five years. This is about even with the industry while slightly lagging peer averages.

Debt-to-Capital has come down from 47.1% in ’13 to 38.8% in ’22 with a last-5-year average of 33.3%. This is lower than peer and industry averages. As of the most recent quarter, Interest Coverage is 21 and Quick Ratio 1.68. Value Line gives APD an A++ for financial strength and M* rates its capital allocation as Exemplary.

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

• CNN Business projects 4.7% YOY and 5% per year for ’23 and ’22-’24, respectively (based on 23 analysts).
• YF projects YOY 4.2% and 6.1% for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 3.4% and 6.9% for ’23 and ’24, respectively (6).
• Value Line projects 8.3% from ’22-’26.
• CFRA projects 5.1% YOY and 10.2% per year for ’23 and ’22-’24.
• M* gives a 2-year annualized ACE of 6%.

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

• CNN Business projects 9% YOY and 9.6% per year for ’23 and ’22-’24, respectively (based on 23 analysts), along with a 5-year annualized rate of 10.2%.
• MarketWatch projects 10.4% and 10.9% per year for ’22-’24 and ’22-’25, respectively (28 analysts).
• Nasdaq.com projects 8.7% YOY and 9.6% per year for ’24 and ’23-’25, respectively (8, 8, and 5 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 10.9%.
• YF projects YOY 8.7% and 10.2% for ’23 and ’24, respectively (21), along with 5-year annualized growth of 8.8%.
• Zacks projects YOY 9.4% and 8.7% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 11.7%.
• Value Line projects annualized growth of 11.6% from ’22-’26.
• CFRA projects 10.5% YOY and 12% per year for ’23 and ’22-’24, respectively, and 12% per year from ’21-’24.
• M* estimates long-term growth of 14.5%.

I am forecasting below all six long-term estimates (mean 11.3%).

My Forecast High P/E is 22. High P/E has trended up from 22.4 (’13) to 31.4 (’22) with a last-5-year average of 31.9. I’m projecting just below the entire range.

My Forecast Low P/E is 20. Low P/E has trended up from 15 (’13) to 21.5 (’22) with a last-5-year average of 21.9. I’d like to use 18, but the market has been very bullish recently.

My Low Stock Price Forecast is the default value of $202.60. This is 28% below the previous closing price and 6.3% below the ’21-’22 low of $216.20. I think this is reasonable despite being more aggressive with my Forecast Low P/E.

Over the last 10 years, Payout Ratio has ranged from 48.8% (’16) to 71.9% (’17) with a last-5-year average of 62%. I am estimating low at 48%.

These inputs land APD in the HOLD zone with an U/D ratio of 1.0. The Total Annualized Return is 7.5%.

PAR (using forecast average, not high, P/E) is 5.9%: less than I seek for a large company. Like many other stocks, this is a tough time to buy with shares up ~23% in the last four months.

To assess margin of safety (MOS), I compare my inputs with those of Member Sentiment (MS). Out of 116 studies over the past 90 days (my own excluded), projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 7.3%, 10.6%, 28.4, 21.3, and 66.4%, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 23.5: lower than MS (24.9) and higher than mine (21). MS Low Stock Price Forecast is almost identical to mine at $202.4. All this is indicative of a healthy MOS for the study.

I would feel comfortable buying APD under $241/share.

LULU Stock Study (1-25-23)

I recently did a stock study on Lululemon Athletica Inc. (LULU) with a closing price of $311.21.

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-sized company has grown sales and EPS at rates of 17.3% and 16.9% per year since 2012. Lines are mostly up (EPS dipped in ’14, ’17, and ’20), straight, and parallel. PTPM over the last 10 years has fallen from 27.8% in ’12 to 21.3% in ’21 with a last-5-year average of 20.3%. This beats peer (stated as BOOT, BURL, and VSCO) and industry averages.

ROE over the last 10 years has ranged from 16.8% (’17) to 39% (’19) with a 5-year average of 30.6%: slightly better than industry averages and solidly better than peer averages. Debt-to-Capital was zero through 2018. The 5-year average is now 15.1%—much lower than peer and industry averages—while the company maintains zero long-term debt

I assume long-term annualized sales growth of 15% based on the following:

• CNN Business projects 27% YOY and 28% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• YF projects YOY 28.3% and 13.7% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 28.3% and 13.2% for ’23 and ’24, respectively (13).
• Value Line projects 15.7% growth per year from ’21-’26.
• CFRA projects 29.5% YOY and 20.6% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 18.6%

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

• CNN Business reports ACE of 27.3% YOY and 20.7% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• MarketWatch projects annualized ACE of 21.5% and 20.3% from ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects annualized growth of 16.4% and 13.6% for ’23-’25 and ’23-’26, respectively (15, 11, and 2 analysts for ’23, ’25, and ’26).
• YF projects YOY 27.3% and 15% for ’23 and ’24, respectively, and 21.9% per year for the next five years (29).
• Zacks projects YOY 27.2% and 14.4% for ’23 and ’24, respectively, and 20% per year for the next five years (13).
• Value Line projects annualized growth of 18.2% from ’21-’26.
• CFRA projects 28.4% YOY and 21.5% for ’23 and ’22-’24, respectively, with 3-year annualized EPS growth of 28%.
• M* gives a long-term ACE of 20.2% per year.

My Forecast High P/E is 34. 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 50.9 and trending higher.

Forecast Low P/E is 24. Low P/E has ranged from 20.7 (’18) to 36 (’21) over the last 10 years. The last-5-year average is 27.8.

My Low Stock Price Forecast is $218.40. This is sticking with default and 30% below the previous closing price.

All this results in an U/D ratio of 3.1, which makes LULU a Buy. Total Annualized Return is 14.5%.

While 14.5% is a solid total return, I believe PAR (based on Forecast Average, not High, P/E) to be more realistic. I think PAR of 10.9% is acceptable for a medium-sized company especially if it has a decent chance of beating my estimates.

Despite originally using an 18% growth projection as a number on lower end of analyst long-term forecasts (including all the long-term EPS forecasts), I discounted to 15% for the final study. This provides some margin of safety (MOS).

As a more comprehensive MOS check, I looked at Member Sentiment (MS) averages of 189 studies over the past 90 days. Projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 16.3%, 16%, 41.8, and 26.6, respectively. I’m lower on all inputs—especially with regard to the P/E range. MS average P/E is 34.7 compared to my 29 (and Value Line’s 32). If I exclude stock studies with projected low price of $50 or lower, which I consider unreasonable, then MS projects a low price of $218.94, which is roughly equal to mine.

I feel confident buying LULU up to $319/share.

CPRT Stock Study (1-24-23)

I recently did a stock study on Copart, Inc. (CPRT) with a closing price of $64.86.

CFRA writes:

     > Founded in 1982 and headquartered in Dallas, CPRT is a global
     > global leader in online vehicle auctions. Copart’s online
     > auction platform links sellers to more than 750,000 members
     > in over 170 countries. The company offers services to process
     > and sell salvage and clean title vehicles to dealers,
     > dismantlers, rebuilders, exporters, and in some cases,
     > individuals. Copart sells vehicles on behalf of insurance
     > companies, banks, finance companies, charities, fleet operators
     > and dealers, and individual owners.

This medium-sized company has grown sales and earnings at annualized rates of 14% and 25.7%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel. Over the last 10 years, PTPM has trended higher from 26.5% to 38.3% with a 5-year average of 36.4%. This far outpaces peer (stated as CRMT, ABG, and LAZY) and industry averages.

ROE has been up and down over the last 10 years with a 5-year average of 29.2%—slightly higher than peer and industry averages. Debt-to-Capital has decreased from 33.8% to 2.5% over the last 10 years with a last-5-year average of 14.2%. This is much lower than peer and industry averages. Current and Quick Ratios are over 4 while Interest Coverage over the last five years is an impressive 48.

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

• CNN Business (FactSet) projects 8.6% YOY and 6.9% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• YF projects 7.8% and 7.3% YOY for ’23 and ’24, respectively (eight analysts).
• Zacks projects YOY 7.1% and 7% for ’23 and ’24, respectively (4).
• Value Line projects 6.5% annualized from ’20-’22 through ’25-’27, but only 2.7% annualized from ’22-’26 (base effects; earnings grew about 20% YOY in ’22).
• M* offers a 2-year ACE of 7% per year.
• CFRA projects 7.9% YOY and 7.2% per year for ’23 and ’22-’24, respectively.

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

• CNN Business (FactSet) reports ACE 3.6% YOY and 6.7% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• MarketWatch (FactSet) projects 6.7% and 13.1% per year from ’22-’24 and ’22-’25, respectively (10 analysts).
• Nasdaq.com (Zacks) projects 7.6% YOY and 6.1% per year for ’24 and ’23-’25, respectively (5, 5, and 2 analysts for ’23, ’24, and ’25).
• YF projects 3.6% and 10.4% YOY for ’23 and ’24, respectively, and 22.3% per year for the next five years (9).
• Zacks projects 0.5% and 7.6% YOY for ’23 and ’24, respectively (5).
• Value Line projects 2.9% per year from ’22-’26.
• CFRA projects 3.1% YOY and 6.9% per year for ’23 and ’22-’24, respectively, along with a 3-year annualized projection of 11%.

I’m using Forecast High P/E of 30. High P/E over the last 10 years has ranged from 19.4 (’17) – 37.9 (’21). The last five years have trended higher with an average of 35.3.

I’m using Forecast Low P/E of 17. Low P/E over the last 10 years has ranged from 14.6 (’16) – 23.9 (’21). The last five years have averaged 20.2.

I’m using a Low Stock Price Forecast of $46.60. The default low price is $37.90, which is 41% below the previous closing price. I selected the 2021 low price, which is about 28% below the previous closing price.

All this results in an U/D ratio of 0.9, which makes CPRT a Hold. Total Annualized Return is 4.7%.

PAR (based on Forecast Average, rather than High P/E) is -0.3%, which echoes Value Line’s statement that “shares… have unappealing long-term appreciation potential, at the current quotation.”

I did not feel particularly conservative with this study, which might mean even -0.3% per year is too optimistic. To better assess this, I look to Member Sentiment. Based on 187 studies in last 90 days, averages for projected sales growth, EPS growth, High P/E, and Low P/E are 8.8%, 10.5%, 31, and 19.2, respectively. I’m actually lower on all inputs. As one additional reference point, Value Line projects an average annual P/E of 27 compared to my 23.5.

My study therefore does appear to be rather conservative. Unfortunately at this time CPRT is far too overpriced to get the sort of annualized return I would hope to realize from a medium-sized company. I will wait to reassess at the upper end of the Buy zone: $55/share.