CSGP Stock Study (8-12-24)

I recently did a stock study on CoStar Group, Inc. (CSGP) with a closing price of $73.88.

M* writes:

     > CoStar Group is a leading provider of commercial real estate data
     > and marketplace listing platforms. Its data offering contains
     > in-depth analytical information on over 5 million commercial real
     > estate properties related to various subsectors including office,
     > retail, hotels, multifamily, healthcare, industrial, self-storage,
     > and data centers. It operates many flagship brands such as
     > CoStar Suite, LoopNet, Apartments.com, BizBuySell, and Lands of
     > America, with more than 80% of its revenue classified as
     > subscription-based. The company recently expanded its presence
     > in Canada, the United Kingdom, Spain, and France.

Since 2016 (two preceding years excluded from full analysis due to fractional EPS base that otherwise drastically inflates growth rate), this medium-size company has grown sales and EPS at annualized rates of 17.1% and 17.4%, respectively. Eight- and 5-year EPS R^2 are 0.73 and 0.24; Value Line scores the company 75 for Earnings Predictability.

Since ’16, PTPM leads peer and industry averages while ranging from 16.3% in ’16 and ’20 to 27.9% in ’19 with a last-5-year mean of 21.5%. ROE leads peer averages but trails the industry while ranging from 4.4% in ’20 to 9.6% in ’19 with a last-5-year mean of 6.0% (Value Line projects 14% for ’27-’29). Debt-to-Capital is less than peer and industry averages while ranging from 0% in ’17-’18 to 17.5% in ’20 with a last-5-year mean of 13.1%.

Quick Ratio is 9.1 and the company has no debt due within the next 5 years. M* rates the company “Exemplary” for Capital Allocation and assigns a “Wide” Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 11.8% and 14.5% for ’24 and ’25, respectively (based on 15 analysts).
• Zacks projects YOY 11.8% and 14.5% for ’24 and ’25, respectively (3 analysts).
• Value Line projects 11.6% annualized growth from ’23-’28.
• CFRA projects 12.8% YOY and 14.8% per year for ’24 and ’23-’25, respectively.
• M* provides a 2-year ACE of 13.1% along with its own 10-year estimate of 13.3%/year.

My 10.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch projects 3.7% and 20.9% per year for ’23-’25 and ’23-’26, respectively (based on 16 analysts).
• Nasdaq.com projects 120% YOY and 107% per year for ’25 and ’24-’26 [3/4/1 analyst(s) for ’24/’25/’26].
• Seeking Alpha projects 4-year annualized growth of 13.8%.
• YF projects YOY 45.9% contraction and 86.4% growth for ’24 and ’25 and 5-year annualized growth of 13.8% (14).
• Zacks projects YOY 46.7% contraction and 90.7% growth for ’24 and ’25 and 5-year annualized growth of 13.8% (5).
• Value Line projects 20.1% annualized growth from ’23-’28.
• CFRA projects contraction of 45.9% YOY and 7.5% growth per year for ’24 and ’23-’25 and a 3-year CAGR of 11.0%.
• M* projects long-term annualized growth of 26.5%.

My 13.0% per year forecast is below the long-term-estimate range (mean of five: 17.6%). Initial value is 2024 Q1 EPS of $0.73/share (annualized) rather than ’23 EPS of $0.92 [$0.73 * (1.13 ^ 5) = $1.68, which is about equal to a 26.0% growth rate on 24 Q2 EPS of $0.53].

My Forecast High P/E is 60.0. Since 2016, high P/E ranges from 68.6 in ’18 to 160 in ’20 with a last-5-year mean of 113 and a last-5-year-mean average P/E of 91. I am below the range but well above my comfort zone.

My Forecast Low P/E is 35.0. Since 2016, low P/E ranges from 37.8 in ’19 to 100 in ’21 with a last-5-year mean of 69.2. I am forecasting below the range.

My Low Stock Price Forecast is $52.00. Default ($25.60) based on initial value given above seems unreasonably low at 65.3% (62.0%) less than the previous closing price (52-week low). My [arbitrary] forecast is 29.6% and 22.7% less, respectively.

These inputs land CSGP in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.5%.

PAR (using Forecast Average—not High—P/E) of 1.6% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

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

Value Line projects a future average annual P/E of 50.0: greater than my 47.5. My high EPS of $1.68 is much lower than Value Line’s $3.05/share.

With regard to valuation, PEG is 8.2 and 4.3 per Zacks and my projected P/E, respectively. While both are substantially overvalued, initial value is not taken into account. Regardless, the extent to which these exceed the [1.0 – 1.5] range generally regarded as fair value [along with no MS being available] suggests to me the market is not yet sure how to price the stock [possibly leaving door open to the sky-high P/E ranges seen to date].

MOS is robust as my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges.

Qualitatively, the bullish case is quite impressive especially as presented by M* and CFRA.

Quantitatively, CSGP is a BUY under $64 per U/D. BI TAR criterion is met ~ $51/share given a forecast high price of $101.

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