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BYD Stock Study (7-25-24)

Posted by on September 13, 2024 at 07:01 | Last modified: July 25, 2024 14:18

I recently did a stock study on Boyd Gaming Corp. (BYD) with a closing price of $57.77.

M* writes:

     > Boyd Gaming Corp is a multi-jurisdictional gaming company. The
     > company operates wholly-owned gaming entertainment properties
     > (casino space, slot machines, table games, and hotel rooms) in
     > Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi,
     > Missouri, Ohio, and Pennsylvania. Geographical regions separate
     > its business segments: Las Vegas Locals, Downtown Las Vegas,
     > Midwest and South, and Online. Midwest and South hold the key
     > number of entertainment properties, and it generate the
     > majority of sales for the company.

Over the past 9 years (2014 excluded from analysis due to negative EPS), the medium-size company has grown sales and EPS at annualized rates of 7.7% and 33.6%, respectively (2020 excluded from analysis due to property shut downs per COVID-19 mandates). Lines are mostly up and narrowing except for sales decline in ’16 and EPS declines in ’17 and ’18. 10-year R^2 is 0.81 (with exclusions) although Value Line gives a low Earnings Predictability score of 20 (without exclusions).

Over the past 9 years (sans ’20), PTPM mostly trails peer and industry averages despite increasing from 1.8% (’15) to 20.1% (’23) with a last-5-year mean of 11.9%. ROE also trails peer and industry averages despite increasing from 9.3% (’15) to 33.5% (’23) with a last-5-year mean of 28.8%. Debt-to-Capital is higher than industry averages but lower than peers while falling from 86.6% (’15) to 68.1% (’23) with a last-5-year mean of 72.5%.

Current (Quick) Ratio is 0.80 (0.67) and Interest Coverage is 5.0 per M* who also assigns a Narrow [quantitative] Economic Moat. Value Line grades the company B+ for Financial Strength.

With regard to sales growth:

My 1.0% forecast is near bottom of the range.

With regard to EPS growth:

My 2.0% per year forecast is near bottom of the long-term-estimate range (mean of three: 8.3%). Initial value is 2024 Q1 EPS of $5.57/share (annualized) rather than ’23 EPS of $6.12.

My Forecast High P/E is 12.0. Over the past 9 years, high P/E falls from 50.5 (’15) to 11.9 (’23) with a last 5-year mean of 16.2 and a last-5-year-mean average P/E of 13.2. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 8.0. Over the past 9 years, low P/E falls from 28.1 (’15) to 8.6 (’23) with a last 5-year mean of 10.3. I am forecasting near bottom of the range [only ’22 (7.9) is less].

My Low Stock Price Forecast (LSPF) of $44.60 is default based on initial value given above. This is 22.8% less than the previous close and 9.5% less than the 52-week low.

Over the past 9 years, Payout Ratio (PR) ranges from zero (four times including ’20) to 23.0% in ’18 with a last-5-year mean of 13.4%. Given a propensity to cut the dividend, I am discounting this to zero.

These inputs land BYD in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 4.5%.

PAR (using Forecast Average—not High—P/E) of 0.8% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only four studies in the past 90 days (my study and two outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 0.9%, 1.5%, 13.8, 9.2, and 13.4%, respectively. I am lower on the latter three. Value Line projects a future average annual P/E of 13.0 that is greater than MS (11.5) and greater than mine (10.0).

MS high / low EPS are $6.30 / $5.57 versus my $6.15 / $5.57 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $8.30 soars above both.

MS LSPF of $44.00 implies a Forecast Low P/E of 7.9: less than the above-stated 9.2. MS LSPF is 14.1% less than the default $5.57/share * 9.2 = $51.24 resulting in more conservative zoning. MS LSPF is also 1.4% less than mine.

With regard to valuation, PEG is 5.2 per my projected P/E, respectively: grossly overvalued due to my low projected EPS growth. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.8.

I think MOS is robust because my inputs (including most-recent-quarter initial value) are near or below respective analyst/historical ranges. The MS sample is too small for meaningful comparison, but anecdotally its TAR of 13.4% is 8.9% per year greater than mine.

Quantitatively speaking, Boyd Gaming strikes me as a company with little going on. The only future flash is the Argus 18.0% (hopefully not a harbinger of how long I’ll be citing them). Looking backward, Boyd deserves a bit more credit. Per CFRA, its Debt-to-Capital is one of the best in the industry along with ROE and ROR. Forward P/E is second only to IGT and if the Argus projection comes to fruition, then I’ll bet some P/E expansion will pay out with it (pun intended albeit probably weak).

Per U/D, BYD is a BUY under $51/share. BI TAR criterion is met < $37 given a forecast high price ~$74.

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BC Stock Study (7-24-24)

Posted by on September 12, 2024 at 06:52 | Last modified: July 25, 2024 14:31

I recently did a stock study on Brunswick Corp. (BC) with a closing price of $77.17.

M* writes:

     > Brunswick is a leading manufacturer in the marine recreation
     > industry. The firm has more than 60 brands delivering products
     > across propulsion (outboard, sterndrive, and inboard engines,
     > propulsion-related controls, rigging, and propellers), parts,
     > accessories, and technology, and boats (including well-known
     > brands like Boston Whaler and Sea Ray). It also owns numerous
     > Freedom Boat Club (shared ownership) locations as well as
     > Boateka, which facilitates transactions in the used boat market.
     > Brunswick’s focus surrounds building the innovative marine and
     > recreational experiences, technologies, and connections
     > supported by quality and innovation.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 5.7% and 15.8%, respectively. Lines are somewhat up, straight, and parallel except for sales/EPS declines in ’19 (big) and ’23. 5-and 10-year EPS R^2 are 0.85 and 0.69, respectively, and Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM trails peer and industry averages through ’19 before crossing above while ranging from 2.7% in ’19 (downside outlier) to 12.6% in ’21 with a last-5-year mean of 9.7%. ROE mostly trails peer averages despite increasing from 14.9% (’14) to 20.1% (’23) with a last-5-year mean of 22.2%. Debt-to-Capital is less than peer and industry averages despite increasing from 28.0% (’14) to 55.4% (’23) with a last-5-year mean of 50.1%.

Value Line gives a B++ grade for Financial Strength and Interest Coverage of 8.0 versus 5.5 for M*. The latter reports Quick Ratio of 0.7, rates the company “Standard” for Capital Allocation, and assigns a “Narrow” Economic Moat.

With regard to sales growth:

My 2.0% per year forecast is less than both long-term estimates (notwithstanding Zacks questionable ’25 projection).

With regard to EPS growth:

My 7.0% per year forecast is below the long-term-estimate range (mean of three: 12.4%). Initial value is 2024 Q1 EPS of $5.57/share (annualized) rather than ’23 EPS of $6.13.

My Forecast High P/E is 15.0. Over the past decade, high P/E falls from 25.5 (’14) to 16.3 (’13) with a last-5-year mean (excluding 173 in ’19) of 15.3 and a last-5-year-mean average P/E of 14.1 (also excluding 114 low P/E in ’19). I am near bottom of the range [only ’22 is less (11.4)].

My Forecast Low P/E is 9.0. Over the past decade, low P/E falls from 18.6 (’14) to 10.8 (’23) with a last-5-year mean (excluding 114 in ’19) of 8.3. I am forecasting below the latter and near the range bottom [’20 (5.4) and ’22 (6.8) are less].

My Low Stock Price Forecast (LSPF) is $54.00. Default ($44.60) based on initial value seems unreasonably low at 42.2% less than previous close and 32.9% less than 52-week low. My (arbitrary) projection is 30.0% and 18.8% less, respectively.

Over the past decade, Payout Ratio (PR) ranges from 16.1% in ’22 to 32.9% in ’17 with a last-5-year mean (excluding 242% outlier in ’19) of 20.0%. I am forecasting below the range at 16.0%

These inputs land BC in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) of 4.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the 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 four studies (my study and two outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 8.0%, 8.0%, 14.4, 7.9, and 64.3%, respectively. I am higher on the P/E range. Value Line’s projected average annual P/E of 12.0 is higher than MS (11.2) and equal to mine.

MS high / low EPS are $9.01 / $6.00 versus my $7.81 / $5.57 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s high EPS of $12.85 soars above both.

MS LSPF of $48.00 implies Forecast Low P/E of 8.0: a near match to the 7.9 above. MS LSPF is 11.1% less than mine thereby resulting in more conservative zoning.

With regard to valuation, PEG is 1.9 per my projected P/E: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is elevated at 1.2 with the two upside P/E outliers from ’19 excluded.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 15.1% TAR is 5.5%/year greater than mine.

For a more detailed look (i.e. Ann C’s “other 20%”), I could dig into past 10-Ks to better explain 2019 for possible exclusion from the visual analysis. I skipped this because I don’t feel it affects future forecasts.

Per U/D, BC is a BUY under $69/share. BI TAR criterion is met < $59/share given a forecast high price ~$117.

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NKE Stock Study (7-24-24)

Posted by on September 10, 2024 at 07:03 | Last modified: July 24, 2024 11:48

I recently did a stock study on Nike Inc. (NKE) with a closing price of $73.40.

M* writes:

     > Nike is the largest athletic footwear and apparel brand in the
     > world. Key categories include basketball, running, and football
     > (soccer). Footwear generates about two thirds of its sales.
     > Its brands include Nike, Jordan (premium athletic footwear and
     > clothing), and Converse (casual footwear). Nike sells products
     > worldwide through company-owned stores, franchised stores,
     > and third-party retailers. The firm also operates e-commerce
     > platforms in more than 40 countries. Nearly all its production is
     > outsourced to contract manufacturers in more than 30 countries.
     > Nike was founded in 1964 and is based in Beaverton, Oregon.

Over the past 10 years, this mega-size ( > $50B annual revenue) company has grown sales and EPS at annualized rates of 6.2% and 8.9%, respectively. Lines are somewhat up, straight, and parallel except for a sales/EPS decline in ’20 (FY ends May; references to year on BI website incremented to match) and additional EPS declines in ’18 and ’23. 5-year and 10-year EPS R*2 are a lackluster 0.48 and 0.43 although Value Line gives a decent Earnings Predictability score of 65.

Over the past decade, PTPM leads industry averages (data unavailable for peers) while ranging from 7.7% in ’20 (downside outlier) to 14.2% in ’21 with a last-5-year mean of 12.4%. ROE leads industry averages while climbing from 25.6% (’15) to 39.6% (’24) with a last-5-year mean of 37.6%. Debt-to-Capital is a bit higher than industry averages while increasing from 9.0% (’15) to 45.3% (’24) with a last-5-year mean of 49.8%.

Value Line gives an A+ grade for Financial Strength. M* reports Quick Ratio of 1.7, rates the company “Exemplary” for Capital Allocation, and assigns a “Wide” Economic Moat. Per 2023 10-K (2024 not yet listed on EDGAR), the interest coverage ratio is 6856 / 205 = 33.4 for ’22 and NMF for ’23 (interest received rather than paid).

With regard to sales growth:

My 3.0% forecast is below both long-term estimates.

With regard to EPS growth:

My 5.0% per year forecast is near the bottom of the long-term-estimate range (mean of five: 10.0%). Initial value is ’24 EPS of $3.73/share.

My Forecast High P/E is 24.0. Over the past decade, high P/E ranges from 24.0 in ’17 to 66.0 in ’20 (not outlier due to 62.8 in ’18) with a last-5-year mean of 45.8 and a last-5-year-mean average P/E of 37.0. I am at the range bottom.

My Forecast Low P/E is 16.0. Over the past decade, low P/E ranges from 19.5 in ’17 to 43.0 in ’18 (not outlier due to 37.5 in ’20) with a last-5-year mean of 28.1. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $59.70 is default based on initial value given above. This is 18.7% less than the previous close and 16.2% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 27.9% in ’17 to 66.7% in ’18 with a last-5-year mean of 40.3%. I am forecasting below the range at 27.0%.

These inputs land NKE in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average—not High—P/E) of 6.7% is less than I seek for a mega-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 84 studies (my study and 33 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.3%, 9.5%, 31.1, 23.2, and 39.4%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 22.0 is lower than MS (27.2) and higher than mine (20.0).

MS high / low EPS are $5.61 / $3.42 versus my $4.76 / $3.73 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $6.00 is greater than both.

MS LSPF of $73.30 implies a Forecast Low P/E of 21.4: less than the above-stated 23.2. MS LSPF is 7.6% less than the default $3.42/share * 23.2 = $79.34 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 22.8% greater than mine, however.

With regard to valuation, PEG is 1.9 and 3.7 per Zacks and my projected P/E, respectively: somewhat rich. Relative Value [(current P/E) / 5-year-mean average P/E] is dirt cheap at 0.53.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Consistent with this is MS TAR of 17.9% that is 7.3% per year greater than mine.

Per U/D, NKE is a BUY under $73/share. BI TAR criterion is met < $57/share given a forecast high price ~$114.

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IPG Stock Study (7-23-24)

Posted by on September 9, 2024 at 06:47 | Last modified: July 24, 2024 11:41

I recently did a stock study on Interpublic Group, Inc. (IPG) with a closing price of $29.67.

M* writes:

     > Interpublic Group is among the world’s largest advertising
     > holding companies based on annual revenue. It provides
     > traditional advertising services along with digital and
     > other services such as public relations through various
     > acquisitions. IPG has made these services available in
     > over 100 countries. The company generates about 65% of
     > revenue in the US and 17% in the UK and Europe.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 4.7% and 9.4%, respectively. Lines are mostly up, straight, and parallel except for sales dips in ’20 and ’23 and EPS declines in ’15, ’17, ’20 (large due to COVID), and ’22. EPS R^2 is ~0.50 for 5-year and 10-year time frames.

Over the past decade, PTPM trails peers and is about even with the industry despite increasing from 9.6% (’14) to 12.9% (’23) with a last-5-year mean of 9.8%. ROE also trails peers and is about even with the industry despite increasing from 22.3% (’14) to 29.3% (’23) with a last-5-year mean of 25.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 45.0% (’14) to 54.2% (’23) with a last-5-year mean of 59.1%.

Quick Ratio is 1.0 and Interest Coverage is 6.8 per M* who rates the company “Exemplary” for Capital Allocation. Value Line grades the company B++ for Financial Strength.

With regard to sales growth:

My 1.0% forecast is well below the long-term estimate due to some [much] lower short-term projections.

With regard to EPS growth:

My 1.0% per year forecast is near the bottom of the long-term-estimate range (mean of five: 4.1%). Initial value is 2024 Q1 EPS of $2.81/share (annualized) rather than ’23 EPS of $2.85.

My Forecast High P/E is 14.0. Over the past decade, high P/E decreases from 18.9 (’14) to 14.4 (’23) with a last 5-year mean (excluding 28.3 in COVID-afflicted 2020) of 15.5 and a last-5-year-mean average P/E of 13.2. I am below the 10-year range.

My Forecast Low P/E is 8.0. Over the past decade, low P/E decreases from 14.2 (’14) to 9.5 (’23) with a last 5-year mean of 10.9. I am forecasting below the range.

My Low Stock Price Forecast of $22.50 is default based on initial value given above. This is 24.2% less than the previous close and 17.3% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 33.9% in ’14 to 56.0% in ’19 (excluding 114% in COVID-afflicted 2020) for a last-5-year mean of 48.4%. I am forecasting below the range at 33.0%.

These inputs land IPG in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 9.2%.

PAR (using Forecast Average—not High—P/E) of 4.8% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Aside from my own, however, only one other study has been done over the past 90 days. My inputs for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are all lower.

Value Line projects a future average annual P/E of 17.0 that is much greater than mine (11.0). Value Line’s high EPS of $3.50/share is higher than my $2.81.

With regard to valuation, PEG is 3.2 and 10.4 (i.e. NMF) per Zacks and my projected P/E, respectively: overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.80.

I think MOS is robust because my inputs are near or below respective analyst (Value Line and others) and historical ranges. I especially lowball projected EPS growth and use a lower most-recent quarterly EPS for initial value.

The biggest strike against Interpublic Group may be its low sales growth as the engine driving stock appreciation. Management metrics and trends also suggest lack of industry leadership. The dividend is strong albeit well-discounted in the current study. If shares drop low enough price then I may be interested, but this is more a lingering personal preference than BI stock selection methodology.

Per U/D, IPG is a BUY under $27/share. BI TAR criterion is met < $21 given a forecast high price ~$41.

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FOXF Stock Study (7-22-24)

Posted by on September 7, 2024 at 06:39 | Last modified: July 22, 2024 11:13

I recently did a stock study on Fox Factory Holding Corp. (FOXF) with a closing price of $48.00. The previous study is here.

Value Line writes:

     > Fox Factory Holding Corp. designs, engineers, manufactures, and
     > markets performance ride dynamics products for customers
     > worldwide. Fox Factory Holding is the holding company of Fox
     > Factory, Inc. The company’s premium brand ride dynamics products
     > are used primarily on bicycles, side-by-side vehicles, onroad
     > vehicles with off-road capabilities, off-road vehicles and
     > trucks, all-terrain vehicles, snowmobiles, specialty vehicles
     > and applications, and motorcycles.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 21.6% and 24.0%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’23 and EPS declines in ’15, ’20, and ’23. The latter seems more sizable and is mostly responsible for 10-year R^2 of 0.86 versus 5-year R^2 of 0.30. I will be looking for an imminent turnaround to preserve integrity of the visual inspection.

Over the past decade, PTPM leads peer and industry averages despite falling from 11.2% (’14) to 9.5% (’23) with a last-5-year mean of 13.0%. ROE also leads peer and industry averages despite falling from 21.7% (’14) to 9.6% (’23) with a last-5-year mean of 17.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 28.0% (’14) to 38.3% (’23) with a last-5-year mean of 27.0%.

Quick Ratio per M* is 1.1 but Interest Coverage is only 3.8. Value Line grades the company B+ for Financial Strength and writes in its analyst note: “the company is in decent financial shape… expected strong cash flow over the coming years should be more than sufficient to cover capital expenditures.”

With regard to sales growth:

My 5.0% forecast is below the range.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of four: 13.3%). Initial value is 2024 Q1 EPS of $1.79/share (annualized) rather than ’23 EPS of $2.85.

My Forecast High P/E is 29.0. Over the past decade, high P/E increases from 26.1 (’14) to 44.8 (’23) with a last 5-year mean of 43.4 and a last-5-year-mean average P/E of 31.3. I am near the bottom of the range (only ’14 is less).

My Forecast Low P/E is 15.0. Over the past decade, low P/E ranges from 14.3 in ’22 to 26.3 in ’21 with a last 5-year mean of 19.2. I am forecasting near the bottom of the range (only ’14 is less).

My Low Stock Price Forecast (LSPF) is $34.00. Default ($26.90) based on initial value from above seems unreasonably low at 44.0% less than the previous close and 29.2% less than the 52-week low. My projection (arbitrary) is lower by 29.2% and 10.5%, respectively.

These inputs land FOXF in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 10.7%.

PAR (using Forecast Average—not High—P/E) of 4.7% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the 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 24 studies in the past 90 days (my study and 7 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 12.0%, 31.5, and 17.2, respectively. I am lower across the board. Value Line projects a future average annual P/E of 22.0 that is less than MS (24.4) and equal to mine.

MS high / low EPS are $3.15 / $1.79 versus my $2.75 / $1.79 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $6.00 soars above both.

MS LSPF of $31.30 implies a Forecast Low P/E of 17.5: just greater than the above-stated 17.2. MS LSPF is 1.7% greater than the default $1.79/share * 17.2 = $30.79 resulting in more aggressive zoning. MS LSPF is 7.9% less than mine, however.

With regard to valuation, PEG is 2.0 and 2.7 per Zacks and my projected P/E, respectively: slightly overvalued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.86.

I think MOS is robust because my inputs (especially most-recent-quarter initial value) are near or below respective analyst/historical ranges. Comparison with MS is limited because of the small sample size, but I am lower than those inputs too. As anecdotal reference, MS TAR of 19.9% is 9.2% per year greater than mine.

Per U/D, FOXF is a BUY under $45/share. BI TAR criterion is met < $40 given a forecast high price ~$80.

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SKX Stock Study (7-18-24)

Posted by on September 5, 2024 at 06:26 | Last modified: July 18, 2024 11:31

I recently did a stock study on Sketchers USA Inc. (SKX) with a closing price of $65.28.

M* writes:

     > Skechers USA Inc is a lifestyle footwear company under the
     > Skechers GO brand name. Products offered include various
     > styles of women’s shoes, men’s shoes, girl’s shoes, boy’s
     > shoes, performance shoes, and work shoes. Allied products
     > offered are apparel, bags, eyewear, toys, and more. Its
     > products are available for sale at department and specialty
     > stores, athletic and independent retailers, boutiques, and
     > internet retailers. The company’s operating segments
     > includes Wholesale and Direct-to-Consumer. It generates
     > maximum revenue from the Wholesale segment.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 13.0% and 12.4%, respectively. Lines are mostly up, straight, and parallel except for a sales + EPS decline in ’20 and additional EPS dips in ’17 and ’22. 5-year and 10-year EPS R*2 of 0.21 and 0.34, respectively (improves to 0.60 and 0.81 if ’20 and ’21 are excluded), are poor in support of Value Line’s lackluster Earnings Predictability score of 40.

Over the past decade, PTPM leads peer averages but trails the industry in ranging from 7.0% in ’22 to 10.6% in ’15 with a last-5-year mean (excluding 3.4% in ’20) of 9.0%. ROE also leads peer averages while trailing the industry in ranging from 4.1% in ’20 to 26.0% in ’21 with a last-5-year mean of 14.0%. Debt-to-Capital is less than peer and industry averages with a last-5-year mean of 35.0%.

Value Line gives a B++ grade for Financial Strength and Interest Coverage of 33.1. M* reports Quick Ratio of 1.4 and assigns a “Narrow” Economic Moat [quantitative] to the company.

With regard to sales growth:

I am forecasting below the range (assuming the aforementioned is in error) at 7.0% per year.

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of four: 17.4%). Initial value is ’23 EPS of $3.49/share rather than 2024 Q1 EPS of $3.80 (annualized).

My Forecast High P/E is 18.0. Over the past decade, high P/E decreases from 23.8 (’14) to 18.3 (’23) with a last-5-year mean (excluding 69.5 in ’20) of 17.7 and a last-5-year-mean average P/E of 14.1. I am near bottom of the range [’18 is less (11.8)].

My Forecast Low P/E is 9.0. Over the past decade, low P/E ranges from 7.2 in ’21 to 19.6 in ’17 with a last-5-year mean (excluding 26.7 in ’20) of 10.5. I am forecasting near bottom of the range (only ’21 is less).

My Low Stock Price Forecast (LSPF) is $45.60. Default ($31.40) based on initial value from above seems unreasonably low at 51.9% less than the previous close and 31.1% less than the 52-week low. Instead, I am using the 52-week low: 30.1% less than the previous close.

These inputs land SKX in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 10.1%.

PAR (using Forecast Average—not High—P/E) of 4.0% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 73 studies (my study and 43 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.5%, 11.4%, 18.0, and 11.0, respectively. I am equal on Forecast High P/E and lower on the rest. Value Line’s projected average annual P/E of 17.0 is higher than MS (14.5) and higher than mine (13.5).

MS high / low EPS are $6.43 / $3.67 versus my $5.88 / $3.49 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $6.85 is greater than both.

MS LSPF of $43.00 implies a Forecast Low P/E of 11.7: greater than the above-stated 11.0. MS LSPF is 6.5% greater than the default $3.67/share * 11.0 = $40.37 resulting in more aggressive zoning. MS LSPF is 5.7% less than mine, however.

With regard to valuation, PEG is 0.93 and 1.4 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is elevated at 1.22.

MOS is robust because my inputs (including most-recent-quarter initial value) are near or below respective analyst/historical ranges and MS averages. Despite all this, MS TAR of 11.5% is only 1.0% per year greater than mine.

As flagged in an audit note, my Forecast High P/E exceeds the 5-year average P/E. Excluding ’20 (unusually high due to COVID) but including ’21 (unusually low as stock price rebounded) is the cause, which also pushes Relative Value higher.

For a company with pretty good fundamentals, the biggest detriment is ~22% stock appreciation over the last year.

Per U/D, SKX is a BUY under $50/share. BI TAR criterion is met < $53/share (puzzling to see the latter exceed the former) given a forecast high ~$106.

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LAD Stock Study (7-17-24)

Posted by on September 4, 2024 at 06:44 | Last modified: July 17, 2024 10:17

I recently did a stock study on Lithia Motors, Inc. (LAD) with a closing price of $275.87.

M* writes:

     > Lithia Motors is a retailer of new and used vehicles and related
     > services. The company offers about 50 brands of vehicles at nearly
     > 500 stores globally across the US, Canada, and UK. The company has
     > expanded largely through the acquisition of dealerships in smaller
     > regional markets but now seeks to grow in any part of the US and we
     > expect more deals over time in the US and, at times, abroad. Annual
     > revenue in 2023 was $31 billion and we see over $50 billion possible
     > in a few years. The US was 90% of 2023 revenue and the UK second
     > at 6%, the latter should rise significantly with the Pendragon
     > acquisition. In 2023, new-car sales were about 49% of total revenue.
     > Lithia was founded in 1946, went public in 1996, and is the largest
     > US auto dealer. It is based in Medford, Oregon.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 20.2% and 27.8%, respectively. Lines are mostly up, straight, and parallel except for an EPS decline in ’23. Despite the latter, 5-year R^2 is 0.77.

Over the past decade, PTPM is about even with the industry and leading peer averages while ranging from 2.9% in ’18 to 6.5% in ’21 with a last-5-year mean of 5.0%. ROE leads peer and industry averages despite falling from 21.6% (’14) to 16.6% (’23) with a last-5-year mean of 23.0%. Debt-to-Capital is less than peer and industry averages by falling from 73.0% (’14) to 64.6% (’23) with a last-5-year mean of 62.0%.

Value Line gives a B grade for Financial Strength [down from B++ in Feb 2023]. Quick Ratio per M* is only 0.25 and Interest Coverage is 4.0. M* gives a “Standard” rating for Capital Allocation.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

My 3.0% forecast is at the bottom of the long-term-estimate range (mean of five: 6.9%). Initial value is 2024 Q1 EPS of $33.87 (annualized) rather than ’23 EPS of $36.29/share.

My Forecast High P/E is 8.0. Over the past decade, high P/E decreases from 18.9 (’14) to 9.1 (’23) with a last-5-year mean of 11.7 and a last-5-year-mean average P/E of 8.5. I am near bottom of the range [only ’22 (7.9) is less].

My Forecast Low P/E is 4.0. Over the past decade, low P/E falls from 10.4 (’14) to 5.5 (’23) with a last-5-year mean of 5.3. I am forecasting near bottom of the range [only ’20 (2.9) is less].

My Low Stock Price Forecast (LSPF) is $198.80. Default $135.50 given initial value from above is unreasonably low at 50.9% less than the previous close and 41.4% less than the 52-week low. Instead, I am selecting the 2023 low stock price: 27.9% less than the previous close and 14.1% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 3.6% in ’22 to 12.3% in ’16. I am forecasting below the range at 3.0%.

These inputs land LAD in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 3.0%.

PAR (using Forecast Average—not High—P/E) of -2.6% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead but even that is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 12 studies (my study and 6 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 13.0%, 10.6%, 10.6, 5.3, and 5.8%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 8.0 is about equal to MS and higher than mine (6.0).

MS high / low EPS are $56.31 / $33.87 versus my $39.26 / $33.87 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $50.00 is in the middle.

MS LSPF of $179.50 implies Forecast Low P/E of 5.3: equal to the MS average. MS LSPF is 9.7% less than mine resulting in more conservative zoning.

With regard to valuation, PEG is 3.2 and 2.6 per Zacks and my projected P/E, respectively: somewhat expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.95.

MOS is robust because my inputs (including most-recent-quarter initial value) are near the bottom or below respective analyst/historical ranges and MS averages. Although the latter comparison is anecdotal due to tiny sample size, MS TAR of 19.5% is an eye-popping 16.5% per year greater than mine.

Lithia Motors has work to do before I would consider investment. Analysts discuss headwinds over the next year or two; I need to see a more convincing reason for growth than Zacks’ (YF’s) 3.0% (3.4%) long-term EPS estimate. More financial strength and higher liquidity would also be nice. A lower stock price would bring greater value.

Per U/D, LAD is a BUY under $227/share. BI TAR criterion is met ~$157 given a forecast high price ~$314.

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DG Stock Study (7-16-24)

Posted by on September 3, 2024 at 06:27 | Last modified: July 16, 2024 11:33

I recently did a stock study on Dollar General Corp. (DG, $126.96). Previous studies are here, here, and here.

M* writes:

     > With over 20,000 locations, Dollar General’s banner is nearly
     > ubiquitous across the rural United States. Dollar General serves
     > as a convenient shopping destination for fill-in store trips,
     > with its value proposition most relevant to consumers in small
     > communities with a dearth of shopping options. The retailer
     > operates a frugal store of about 7,500 square feet and primarily
     > offers an assortment of branded and private-label consumable
     > items (80% of net sales) such as paper and cleaning products,
     > packaged and perishable food, tobacco, and health and beauty
     > items at low prices. Dollar General also offers limited
     > assortment of seasonal merchandise, home products, and apparel.
     > The firm sells most items at a price point of $10 or less.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 9.0% and 12.9%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’22 (FY ends Jan 31; references to year at BI and Value Line incremented to align) and a more serious correction in ’24 (down 29.3% YOY) that threatens visual inspection if recovery doesn’t come soon. Value Line gives an Earnings Predictability score of 80 that matches 10-year R^2 (0.80), but 5-year R^2 of 0.04 is what best tells the story right now.

Over the past decade, PTPM leads peer and industry averages despite falling from 8.9% (’15) to 5.5% (’24) with a last-5-year mean of 8.1%. ROE leads peer and industry averages while increasing from 19.8% (’15) to 25.7% (’24) with a last-5-year mean of 32.9%. Debt-to-Capital is less than peer and industry averages until ’20 when it spikes higher and continues to increase with a last-5-year mean of 69.8%.

Value Line gives a B++ grade for Financial Strength [down from “A” nine months ago]. Quick Ratio per M* is only 0.11 and Interest Coverage is 7.1. M* also gives a “Standard” rating for Capital Allocation and writes:

     > The firm holds a leverage target of 3 turns lease-adjusted
     > debt/EBITDAR… though its current leverage ratio exceeds the long-
     > term target amid a pullback in consumer spending, which has
     > weighed on financial results. While we expect Dollar General to
     > return to its leverage target over the next few years, it took
     > precautionary measures by suspending share repurchases as it
     > prepares for a precarious economic backdrop. We view this
     > decision as prudent but also an example of how significant
     > financial obligations can constrain financial flexibility.

With regard to sales growth:

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

With regard to EPS growth:

My 1.0% per year forecast (up from -1.0% in study 9 months ago) is toward the bottom of the long-term-estimate range (mean of five: 5.1%). Initial value is 2024 Q1 EPS of $6.87 (annualized) rather than ’23 EPS of $7.55/share.

My Forecast High P/E is 20.0. Over the past decade, high P/E increases from 20.6 (’15) to 31.1 (’24) with a last-5-year mean of 25.1 and a last-5-year-mean average P/E of 20.1. I am near bottom of the range [’18 (18.8) and ’19 (19.8) are lower].

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 11.7 in ’18 to 17.2 in ’23 with a last-5-year mean of 15.2. I am forecasting near bottom of the range [only ’18 (11.7) and ’21 (11.8) are lower].

My Low Stock Price Forecast (LSPF) of $82.40 is default given initial value from above. This is 35.1% less than the previous close and 18.1% less than the 52-week low.

Since dividend inception in 2016, Payout Ratio (PR) ranges from 13.6% in ’21 to 31.3% in ’24. I am forecasting below the range at 13.0%.

These inputs land DG in the HOLD zone with a U/D ratio of 0.4. Total Annualized Return (TAR) is 3.3%.

PAR (using Forecast Average—not High—P/E) of -1.1% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead but even that is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 47 studies (my study and 24 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.0%, 7.7%, 22.7, 15.0, and 19.6%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is higher than MS (18.9) and higher than mine (15.5).

MS high / low EPS are $10.59 / $7.54 versus my $7.22 / $6.87 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $11.50 soars above both.

MS LSPF of $103.00 implies a Forecast Low P/E of 13.7: less than the above-stated 15.1. MS LSPF is 8.9% less than the default $7.54/share * 15.0 = $113.10 resulting in more conservative zoning. MS LSPF is 25.0% greater than mine, however.

With regard to valuation, PEG is 2.5 per Zacks [and 18.3—NMF—per my projected P/E]: somewhat expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.92.

MOS is robust because my inputs (including most-recent-quarter initial value) are near or below respective analyst/historical ranges and MS averages. Although the latter comparison carries less impact due to small sample size, MS TAR of 19.6% is an eye-popping 16.3% per year greater than mine.

Dollar General has work to do before I would consider investment. Though down, the stock is not near its 52-week low. Debt load (liquidity) seems uncomfortably high (low). Analysts have reason to project tempered EPS growth for next couple years due to macroeconomic and industry challenges. With low forecast sales growth, I am giving a SELL rating at the present time.

Per U/D, DG is a BUY under $97/share. BI TAR criterion is met < $72 given a forecast high price ~$144.

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