HAE Stock Study (8-5-24)

Posted by Mark on September 28, 2024 at 06:28 | Last modified: August 5, 2024 17:11

I recently did a stock study on Haemonetics Corp. (HAE) with a closing price of $89.95.

M* writes:

     > Haemonetics Corp aims to improve patient care and reduce the
     > cost of healthcare by providing medical products and solutions
     > in the blood and plasma component collection, surgical suite,
     > and hospital transfusion service spaces. As such, the company
     > operates under three segments: plasma, blood center, and
     > hospital. The company places primary emphasis on its plasma
     > and hospital segments due to their robust growth potential,
     > whereas the blood center segment tends to be constrained by
     > higher competition. Product revenue is driven by demand for
     > disposable blood component collection and processing sets
     > and the related equipment needed for proper functionality.

2016-17 (FY ends Mar 31; yearly references on BI website and Value Line incremented to match) are ugly years for this company. In looking at 2016 Form 10-K, I see mentions of “Russian economic conditions” and “declines in US blood center collections.” 2017 Form 10-K mentions “declines in US blood center collections,” goodwill impairments, and restructuring [costs]. Value Line considers much of this nonrecurring as it excludes losses of $2.72 and $2.04/share for the respective years.

Although I have doubts about recurrent exclusions for supposedly nonrecurrent events, I am excluding 2015-17 from the full analysis. One caveat I do acknowledge is the distant past of which this is a part.

Since 2018, then, the medium-size company has grown sales and earnings at annualized rates of 5.5% and 15.1%, respectively. Lines are mostly up and parallel except for a sales decline in ’21 and EPS decline in ’22. Five-year EPS R^2 is only 0.23 and Value Line gives a similarly lackluster Earnings Predictability score of 45.

Overlapping price bars in ’18 and ’25 represent several years without significant stock appreciation. I hope for a “coiled spring” effect when seeing this.

Since ’18, PTPM trails peer and industry averages despite increasing from 6.6% (’18) to 11.6% (’24) with a last-5-year mean of 9.5%. ROE exceeds peer and industry averages while ranging from 5.4% in ’18 to 14.6% in ’23 with a last-5-year mean of 11.3%. Debt-to-Capital is greater than peer and industry averages in rising from 25.2% (’18) to 45.7% (’24) with a last-5-year mean of 47.9%.

Quick Ratio and Interest Coverage are 1.2 and 12.6 per M* who also assigns a [quantitative] “Narrow” Economic Moat. Value Line gives an A grade for financial strength.

With regard to sales growth:

• YF projects YOY 7.0% and 4.3% for ’25 and ’26, respectively (based on 7 analysts).
• Zacks projects YOY 6.4% and 3.1% for ’25 and ’26, respectively (3 analysts).
• Value Line projects annualized growth of 10.4% from ’24-’29.
• CFRA gives ACE of 7.0% YOY and 6.2% per year for ’25 and ’24-’26, respectively (7).
• M* provides a 2-year ACE of 10.7% per year.

My 4.0% annualized forecast is below the range.

With regard to EPS growth:

• MarketWatch projects 16.7% annualized growth for both ’24-’26 and ’24-’27 (based on 8 analysts).
• Nasdaq.com projects 12.0% YOY and 15.1% per year for ’26 and ’25-’27 (3 analysts each for ’25, ’26, and ’27).
• Seeking Alpha projects 4-year annualized growth of 14.8%.
• YF projects YOY 16.2% and 15.2% for ’25 and ’26, respectively (7), along with 5-year annualized growth of 12.0%.
• Zacks projects YOY 15.4% and 12.0% for ’25 and ’26, respectively (3), along with 5-year annualized growth of 12.0%.
• Value Line projects annualized growth of 11.4% from ’24-’29.
• CFRA provides ACE of 101% YOY and 54.0% per year (puzzling) for ’25 and ’24-’26, respectfully (7).
• M* projects long-term annualized growth of 12.0%.

My 10.0% forecast is below the long-term-estimate range (mean of five: 12.4%). Initial value is ’24 EPS of $2.29/share.

My Forecast High P/E is 40.0. Since ’18, high P/E falls from 88.8 to 41.6 (’24) with a last-5-year mean (excluding 143 in ’22) of 67.2 and a last-5-year-mean average P/E of 53.1. I am below the range.

My Forecast Low P/E is 30.0. Since ’18, low P/E falls from 45.3 to 30.9 (’24) with a last-5-year mean of 39.1. I am forecasting near bottom of the range [only ’23 (21.7) is less].

My Low Stock Price Forecast of $68.70 is default based on initial value given above. This is 23.5% less than the previous close and 2.8% less than the 52-week low.

These inputs land HAE in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average—not High—P/E) is 7.5%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR 10.4% instead.

To assess MOS, I would normally start by comparing my inputs with those of Member Sentiment but only two other studies have been done in the past 90 days (my study and three outliers excluded): not enough for comparison.

Value Line projects a future average annual P/E of 28.0: much lower than my 35.0. My high EPS of $3.69 is much lower than Value Line’s $6.80/share.

With regard to valuation, PEG is 1.6 and 3.6 per Zacks and my projected P/E, respectively: somewhat expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.74.

MOS is fair (not robust) in this study because my inputs are near or below respective analyst/historical ranges. I’m concerned that my P/E range is high relative to Value Line.

Haemonetics strikes me as a decent company but nothing great. I question consistency of execution as discussed near the top. ROE seems a bit low. Sales growth seems a bit low. I was initially impressed with the Value Line projections, but overall analyst estimates don’t quite measure up. The stock is trading well off its 52-week lows, which could otherwise help.

Per U/D, HAE is a BUY under $88/share. BI TAR criterion is met ~$73/share given a forecast high price ~$147. I will wait until at most the latter to invest.

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