G Stock Study (5-21-24)

I recently did a stock study on Genpact Ltd. (G) with a closing price of $37.18. Previous studies are here and here.

M* writes:

     > Genpact Ltd is a provider of business process management
     > services. Clients are industry verticals and operate in banking and
     > financial services, insurance, capital markets, consumer product
     > goods, life sciences, infrastructure, manufacturing and services,
     > healthcare, and high-tech. Genpact’s services include aftermarket,
     > procurement, risk and compliance, human resources, IT, industrial
     > direct solutions, collections, finance and accounting, and media
     > services. Genpact’s end market by revenue is India. The company
     > is a General Electric spin-off, which is still a large source of
     > revenue for Genpact.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 8.5% and 12.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’22.

Over the past decade, PTPM leads peer and industry averages while ranging from 10.8% in ’20 to 13.5% in ’23 with a last-5-year mean of 11.6%. ROE slightly trails the industry while beating peer averages by ranging from 14.9% (’14) to 30.8% (’23) with a last-5-year mean of 20.8%. Debt-to-Capital is lower than industry averages and higher than peers in climbing from 38.2% (’14) to 40.1% (’23) with a last-5-year mean of 48.7%.

Quick Ratio is 1.4 and Interest Coverage is 10.1. Value Line rates the company “A” for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 0.9x on a TTM basis.”

With regard to sales growth:

• YF projects YOY 3.0% and 6.1% for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 2.6% and 6.4% for ’24 and ’25, respectively (6 analysts).
• Value Line projects 5.4% annualized growth from ’23-’28.
• CFRA projects 3.5% YOY and 4.2% per year for ’24 and ’23-’25, respectively.

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

• MarketWatch projects 6.9% and 7.6% per year for ’23-’25 and ’23-’26, respectively (based on 13 analysts).
• Nasdaq.com projects 9.3% YOY and 10.6% per year for ’25 and ’24-’26 (3, 7, and 4 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 8.0%.
• YF projects YOY 2.0% and 8.9% for ’24 and ’25, respectively (11), along with 5-year annualized growth of 3.2%.
• Zacks projects YOY 1.3% and 9.6% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 7.9%.
• Value Line projects 8.4% annualized growth from ’23-’28.
• CFRA projects 1.3% YOY and 3.9% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 6.0%.

My 3.0% forecast is below the long-term-estimate range (mean of four: 6.9%). The initial value is ’23 EPS of $3.41/share rather than 2024 Q1 EPS of $3.50 (annualized). While the forecast may seem low, initial value is 81.4% greater than the previous year. I typically expect some mean reversion when I see such dramatic changes.

My Forecast High P/E is 14.0. Over the past decade, high P/E increases from 22.8 (’14) to 28.7 (’22) before tanking to 14.2 in ’23. The last-5-year mean is 25.7 and the last-5-year-mean average P/E is 21.0. I am forecasting below the range.

My Forecast Low P/E is 8.0. Over the past decade, low P/E increases from 16.1 (’14) to 20.0 (’21/’22; temporary COVID disruption in ’20 of 12.4) before tanking to 8.6 in ’23 with a last-5-year mean of 16.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $27.30 is default based on the initial value. This is 20.5% less than the previous closing price and 7.1% less than the 52-week low.

Since dividend payments begin in 2017, the lowest Payout Ratio (PR) is 16.1% in ’23 with a last-5-year mean of 22.4%. I am forecasting below the range at 16.0%.

These inputs land G in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.1%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 6.3%. 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 87 studies done in the past 90 days (my study and 20 other 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 6.0%, 6.7%, 20.4, 13.3, and 22.4%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 16.0 that is less than MS (16.9) and much greater than mine (11.0).

MS high / low EPS are $4.33 / $2.96 versus my $3.95 / $3.41 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.10 is in the middle.

MS LSPF of $28.10 implies a Forecast Low P/E of 9.5 versus the above-stated 13.3. MS LSPF is 28.6% less than the default $2.96/share * 13.3 = $39.37: quite a big discrepancy! MS LSPF is still 2.9% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 22.5% (another big discrepancy). Especially given my conservative judgments, I believe MOS to be robust in the current study.

Big discrepancies are also seen with regard to valuation. PEG is 1.4 and 3.2 per Zacks and my projected P/E: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely cheap at 0.47.

The P/E compression in 2023 makes for a very interesting stock study. EPS spikes but stock price does not follow. The difference between P/E remaining at ’23 levels or returning to historical levels is the TAR difference between MS and the current study: all highly discrepant.

G is a BUY under $34/share. With a forecast high price ~$55, my personal TAR criterion is satisfied ~$27.50.

In reading the Apr 2024 BI Magazine, I realize “my personal TAR criterion” stems from BI. As discussed in Daniel Boyle’s “Repair Shop” article:

     > BetterInvesting teaches us to focus on companies that can consistently grow their
     > earnings at least 15% per year so that if valuation, as measured by the P/E ratio,
     > doesn’t change the stock is expected to double over five years.

UI Stock Study (5-20-24)

I recently did a stock study on Ubiquiti Inc. (UI) with a closing price of $146.37. The previous study is here.

M* writes:

     > Ubiquiti Inc is a wireless and wireline network equipment provider
     > for small Internet service providers and small- and midsize-
     > business integrators. Its product is based on two primary categories
     > namely Service Provider Technology and Enterprise Technology. The
     > company generates maximum revenue from Enterprise Technology.
     > Geographically, it derives a majority of revenue from North America
     > and also has a presence in Europe, the Middle East and Africa; Asia
     > Pacific and South America.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 16.2% and 20.3%, respectively (FY ends 6/30). Lines are mostly up and parallel with a sales decline in ’22 and EPS declines in ’15, ’18, and ’22.

Over the past decade, PTPM leads industry and peer averages while ranging from 24.5% in ’15 to 38.3% in ’21 with a last-5-year mean of 31.5%. ROE is above peer and industry averages until ’20 when a stockholders’ deficit appears; the last-5-year mean is -257%. Debt-to-Capital is mostly less than peer and industry averages until ’18 and ’19, respectively, when it soars to triple-digit percentages for a last-5-year mean of 131%.

Interest Coverage is 6.5, Current Ratio is 3.9, and Quick Ratio is 1.1. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 0.6% and 12.3% for ’24 and ’25, respectively (based on 2 analysts).
• Zacks projects YOY 1.0% and 16.1% for ’24 and ’25, respectively (2 analysts).
• Value Line projects 7.6% per year for ’23-’28.
• CFRA projects YOY 0.9% and 9.4% for ’24 and ’23-’25, respectively.
• M* gives a 2-year annualized ACE of 9.4%.

I am forecasting toward the lower end of the range at 5.0% per year.

With regard to EPS growth:

• MarketWatch projects 24.5% YOY and 9.1% per year for ’23-’25 and ’23-’26, respectively (based on 3 analysts).
• Nasdaq.com projects 6.8% YOY and 4.9% per year for ’25 and ’24-’26, respectively (1 analyst).
• YF projects YOY 13.7% contraction (’24) and 31.9% growth (’25) along with 5-year annualized growth of 9.6% (2).
• Zacks projects YOY 3.2% contraction and 6.8% growth for ’24 and ’25, respectively (1).
• Value Line projects 6.0% per year from ’23-’28.
• CFRA projects 13.7% YOY contraction and 6.7% growth per year for ’24 and ’23-’25, respectively.

I am forecasting below both long-term estimates (mean 7.8%) at 5.0% per year. I will use ’23 EPS of $6.74/share as the initial value rather than 2024 Q3 EPS of $5.78 (annualized).

My Forecast High P/E is 26.0. Over the past decade, high P/E trends up from 28.9 (’14) to 52.0 (’23) with a last-5-year mean of 44.5 and last-5-year-mean average P/E of 33.4. I am forecasting toward the bottom of the range [only ’16 (16.6) and ’17 (20.9) are lower].

My Forecast Low P/E is 16.0. Over the past decade, low P/E trends up from 8.7 (’14) to 23.8 (’23) with a last-5-year mean of 22.2. I am forecasting under the last-10-year median of 17.6.

My Low Stock Price Forecast (LSPF) of $107.80 is default based on $6.74/share. This is 24.4% less than the previous close and 4.7% greater than the 52-week low.

The last-5-year mean Payout Ratio (PR) is 26.8%. I am forecasting below the range at 16.0%.

These inputs land UI in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 9.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.1%. 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 4 studies done in the past 90 days (my study and 3 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 6.3%, 8.5%, 29.0, 19.1, and 24.3%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 27.0 that is greater than MS (24.1) and mine (21.0).

MS high / low EPS are $9.46 / $6.15 versus my $8.60 / $6.74 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $9.00 is in the middle.

MS LSPF of $97.10 implies a Forecast Low P/E of 15.8 versus the above-stated 19.1. MS LSPF is 17.3% less than the default $6.15/share * 19.1 = $117.47, which results in more conservative zoning. MS LSPF is also 9.9% less than mine.

TAR (over 15.0% preferred) is much less than MS 19.1%. Even though my LSPF is relatively high (I often decrement Forecast Low P/E to coincide with the 52-week low), I believe MOS to be robust in the current study. Analyst estimates are as scant as the MS sample size, but I am more conservative on every input.

With regard to valuation, PEG is 4.8 per my projected P/E: substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.76.

I am not a fan of the negative ROE. It appears to be fueled by PR (starting 2019) and stock buybacks that have decreased share count by about 20% over the last several years. Ideally these activities would be funded via cash flow from operations. Taking on debt is a negative that, in my opinion, can offset a resultant positive. Stockholders’ deficit grows further in 2023. Although CFRA does not seem concerned about this (calling the balance sheet “solid”) and Value Line doesn’t mention it, I would like to a path back to equity in order to feel more comfortable.

UI is a BUY under $136/share. With a forecast high price ~$224, my personal TAR criterion would be met ~$112. I am more likely to hold out for the latter given the stockholders’ deficit and debt load.

PAYC Stock Study (5-20-24)

I recently did a stock study on Paycom Software Inc. (PAYC) with a closing price of $182.28.

M* writes:

     > Paycom is a fast-growing provider of payroll and human capital
     > management software primarily targeting clients with 50-10,000
     > employees in the United States. Paycom was established in 1998
     > and services about 19,500 clients as of 2023, based on parent
     > company grouping. Alongside its core payroll software, Paycom
     > offers various HCM add-on modules, including time and
     > attendance, talent management, and benefits administration.

Since 2016, this medium-size company has grown sales and earnings at annualized rates of 25.7% and 30.9%, respectively (’14 and ’15 excluded due to small bases that would otherwise result in even higher growth rates). Lines are up, straight, and narrowing except for an EPS decline in ’20 (FY ends Dec 31).

Over the last decade, PTPM leads industry and peer averages while generally trending higher from 6.4% (’14) to 27.9% (’23) with a last-5-year mean of 26.6%. ROE also leads peer and industry averages while ranging from 8.6% in ’14 to 41.5% in ’17 with a last-5-year mean of 26.7%. Having no long-term debt, Debt-to-Capital is much lower than peer and industry averages: last-5-year mean is 3.2%.

Current Ratio is 1.13 but Quick Ratio is only 0.13. M* gives an “Exemplary” rating for Capital Allocation and assigns a “Narrow” economic moat to the company. Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 10.4% and 11.6% for ’24 and ’25, respectively (based on 20 analysts).
• Zacks projects YOY 10.4% and 11.2% for ’24 and ’25, respectively (9 analysts).
• Value Line projects 11.7% per year for ’23-’28.
• CFRA projects 10.5% YOY and 11.3% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year annualized ACE of 11.0% and projects 12.0% per year through 2028 in its analyst report.

I am forecasting below the range at 9.0% per year.

With regard to EPS growth:

• MarketWatch projects 7.6% and 11.6% per year for ’23-’25 and ’23-’26, respectively (based on 23 analysts).
• Nasdaq.com projects 14.4% YOY and per year for ’25 and ’24-’26 (8, 8, and 2 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 10.4%.
• YF projects YOY 0.5% and 13.5% for ’24 and ’25, respectively (20), along with 5-year annualized growth of 10.6%.
• Zacks projects YOY 0.9% contraction (’24) and 12.4% growth (’25) along with 5-year annualized growth of 10.4% (9).
• Value Line projects 11.7% annualized growth from ’23-’28.
• CFRA projects growth of 1.0% YOY and 7.2% per year for ’24 and ’23-’25 along with a 3-year CAGR of 13.0%.
• M* provides an annualized long-term ACE of 13.4%.

My 9.0% forecast is below the long-term-estimate range (mean of five: 11.3%). I will use ’23 EPS of $5.88/share as the initial value rather than 2024 Q1 EPS of $8.21 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 63.6 in ’23 to 268 in ’14. Four of 10 years have triple-digit high P/Es. Excluding those, the last-5-year mean is 80.1 and the last-5-year-mean average P/E is 67.1. I am way below the range and at the top of my comfort zone.

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 24.9 in ’23 (30.3 in ’16 is the second-lowest) to 112 in ’14 with a last-5-year mean of 54.2. I am below the range.

My Low Stock Price Forecast (LSPF) of $141.10 is default based on $5.88/share initial value. This is 22.6% less than the previous close and 3.5% less than the 52-week low.

The stock pays a dividend for the first time in 2023 with a Payout Ratio (PR) of 19.1%. I will forecast zero for now.

These inputs land PAYC in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 11.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.9%. 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 167 studies done in the past 90 days (my study and 42 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 11.9%, 12.5%, 40.0, 25.0, and 15.2%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 30.0 that is less than MS (32.5) and greater than mine (29.5).

MS high / low EPS are $11.42 / $5.90 versus my $9.05 / $5.88 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $13.45 is greater than both.

MS LSPF of $146.40 implies a Forecast Low P/E of 24.8 versus the above-stated 25.0. MS LSPF is only 0.8% less than the default $5.90/share * 25.0 = $147.50. MS LSPF is 3.8% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.3 per Zacks and my projected P/E: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is ridiculously cheap at 0.33.

Lots of things to like about this stock study: good analyst coverage, no long-term debt, outstanding ROE, “Exemplary” Capital Allocation and 4-star rating per M*, dirt-cheap relative value, “Strong Buy” per CFRA, and “wide recovery potential at a deeply discounted valuation” per Value Line.

PAYC is a BUY under $180/share. With a forecast high price ~$316, my personal TAR criterion would be met ~$158 (0% PR forecast decreases TAR by 0.5%).

INFY Stock Study (5-17-24)

I recently did a stock study on Infosys Ltd ADR (INFY) with a closing price of $17.24.

M* writes:

     > Infosys is a leading global IT services provider, with nearly 250,000
     > employees. Based in Bangalore, the Indian IT services firm leverages
     > its offshore outsourcing model to derive 60% of its revenue from North
     > America. The company offers traditional IT services offerings:
     > consulting, managed services and cloud infrastructure services,
     > and business process outsourcing as a service.

Over the last 10 years, this large-size company has grown sales and earnings at annualized rates of 9.1% and 6.6%, respectively. Lines are mostly up, straight, and parallel except for an EPS dip in ’18 (FY ends Mar 31; any FY references to BI website or Value Line are incremented by one). EPS R^2 is 0.94.

Over the past decade, PTPM leads industry and peer averages despite trending down from 32.3% (’15) to 23.4% (’24) with a last-5-year mean of 24.3%. ROE leads industry averages but slightly trails peers despite increasing from 24.2% (’15) to 32.7% (’24) with a last-5-year mean of 30.5%. Debt-to-Capital is much lower than peer and industry averages since the company has no long term debt (last-5-year mean 7.7%).

Quick Ratio is 1.7. Value Line gives an A+ rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation and assigns a “Narrow” economic moat to the company.

With regard to sales growth:

• YF projects YOY 2.9% and 6.1% for ’25 and ’26, respectively (based on 12 analysts).
• Zacks projects YOY 2.0% and 7.0% for ’25 and ’26, respectively (5 analysts).
• Value Line projects 2.1% per year for ’24-’29.
• CFRA projects 5.0% YOY and 7.6% per year for ’25 and ’24-’26, respectively.
• M* gives a 2-year annualized ACE of 6.2% and projects 7.0% per year over next five years in its analyst report.

I am forecasting below the range at 2.0% per year.

With regard to EPS growth:

• MarketWatch projects 8.8% and 9.0% per year for ’24-’26 and ’24-’27, respectively (based on 50 analysts).
• Nasdaq.com projects 8.0% YOY and 10.2% per year for ’26 and ’25-’27 (8, 8, and 2 analysts for ’25, ’26, and ’27).
• Seeking Alpha projects 4-year annualized growth of 10.0%.
• YF projects YOY 1.3% contraction (’25) and 9.3% growth (’26) along with 5-year annualized growth of 14.8% (11).
• Zacks projects YOY 1.3% contraction (’25) and 8.0% growth (’26) along with 5-year annualized growth of 10.0% (8).
• Value Line projects annualized growth of 10.5% from ’24-’29.
• CFRA projects growth of 23.4% YOY and 17.3% per year for ’25 and ’24-’26 [EPS matrix displays $0.38 for most recent completed year despite four quarters summing to $0.64. I use the latter even though M* and Value Line both state $0.76], respectively, along with a 3-year CAGR of 10.0%.
• M* provides an annualized long-term ACE of 8.5%.

My 8.0% forecast is below the long-term-estimate range (mean of five: 10.8%). Initial value is ’24 EPS of $0.76/share.

My Forecast High P/E is 21.0. Over the past decade, high P/E increases from 21.2 (’15) to 27.3 (’24) with a last-5-year mean of 30.7 and a last-5-year-mean average P/E of 24.5. I am near the bottom of the range [only ’18 (17.0), which appears to be a (potentially TCJA) outlier, is lower].

My Forecast Low P/E is 14.0. Over the past decade, low P/E ranges from 12.2 in ’21 to 24.6 in ’22 with a last-5-year mean of 18.3. I am forecasting just below the 7-year median (14.2) from ’15-’21 (’22-’24 range is 19.4 – 24.6).

My Low Stock Price Forecast (LSPF) is $12.00. The default value ($10.60) seems unreasonably low as a 38.5% discount to previous close. $12.00 is a 30.4% discount and 20.0% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 33.4% in ’15 and the last-5-year mean is 53.2%. I am forecasting below the range at 33.0%.

These inputs land INFY in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 56 studies done in the past 90 days (my study and 12 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 5.7%, 9.0%, 26.0, 16.1, and 53.6%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 22.0 that is higher than MS (21.1) and higher than mine (17.5).

MS high / low EPS are $1.14 / $0.74 versus my $1.12 / $0.76 (per share). Range midpoint is identical. Value Line’s high EPS of $1.25 is higher than both.

MS LSPF of $13.60 implies a Forecast Low P/E of 18.4 versus the above-stated 16.1. MS LSPF is 14.2% greater than the default $0.74/share * 16.1 = $11.91, which results in more aggressive zoning. MS LSPF is also 13.3% greater than mine.

TAR (over 15.0% preferred) is less than MS 13.6%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.3 and 2.6 per Zacks and my projected P/E: both somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 0.93.

I think the pivotal detail for this stock study is whether future P/E will remain elevated like the last three years or return to the range of ’15-’21. High P/E spikes in ’20 and both high and low P/E are elevated by ’21. Both turn lower in ’22 and ’23 to create disparate ranges between the first seven years and last three.

INFY is a BUY under $14.90/share. With a forecast high price of $23.60, my personal TAR criterion will be met at $13.30 (perhaps a few cents higher as forecasting PR below the range rather than at the 5-year median trims TAR by 1.0%).

DRI Stock Study (5-16-24)

I recently did a stock study on Darden Restaurants Inc. (DRI) with a closing price of $151.78.

M* writes:

     > Darden Restaurants is the largest restaurant operator in the U.S.
     > full-service space, with consolidated revenue of $10.5 billion in
     > fiscal 2023 resulting in 3%-4% full-service market share (per NRA data
     > and our calculations). The company maintains a portfolio of 10 restaurant
     > brands: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen,
     > Ruth’s Chris, Yard House, The Capital Grille, Seasons 52, Eddie V’s,
     > Bahama Breeze, and The Capital Burger. Darden generates revenue almost
     > exclusively from company-owned restaurants, though a small network of
     > franchised restaurants and consumer-packaged goods sales through the
     > traditional grocery channel contribute modestly. As of the end of its
     > fiscal 2023, the company operated 1,914 restaurants in the U.S.

Over the last 10 years excluding 2019 (actually 2020 for COVID-19; FY ends May 31 and I must increment any BI-referenced year by one), this large-size company has grown sales and earnings at annualized rates of 4.7% and 20.5%, respectively. Lines are mostly up, straight, and parallel except for sales/EPS decline in ’21.

Over the past decade, PTPM trails peer and industry averages despite increasing from 2.8% (’14) to 10.7% (’23) with a last-5-year mean (’20 excluded for entire paragraph) of 9.8%. ROE leads peer and industry averages while increasing from 8.6% (’14) to 47.4% (’23) with a last-5-year mean of 35.6%. Debt-to-Capital is lower than peer and industry averages despite ranging from 18.4% in ’16 to 69.0% in ’22 with a last-5-year mean of 57.6%.

Quick Ratio is low at 0.14 but Interest Coverage (per Value Line) is 11.7. M* gives a “Standard” rating for Capital Allocation and Value Line gives a B+ rating for Financial Strength. M* assigns a “Narrow” economic moat to the company.

With regard to sales growth:

• YF projects YOY 8.8% and 4.8% for ’24 and ’25, respectively (based on 25 analysts).
• Zacks projects YOY 9.0% and 4.9% for ’24 and ’25, respectively (12 analysts).
• Value Line projects 4.4% per year for ’23-’28.
• CFRA projects 8.6% YOY and 7.1% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year annualized ACE of 6.9%.

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

With regard to EPS growth:

• MarketWatch projects 10.4% and 10.0% per year for ’23-’25 and ’23-’26, respectively (based on 30 analysts).
• Nasdaq.com projects 8.9% and 8.5% per year for ’24-’26 and ’24-’27, respectively [14/7/1 analyst(s) for ’24/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 10.2%.
• YF projects YOY 10.8% and 8.6% for ’24 and ’25, respectively (27), along with 5-year annualized growth of 10.1%.
• Zacks projects YOY 10.6% and 8.1% for ’24 and ’25, respectively (14), along with 5-year annualized growth of 10.3%.
• Value Line projects 11.3% per year from ’23-’28.
• CFRA projects 11.1% YOY and 10.0% per year for ’24 and ’23-’25, respectively.
• M* provides long-term ACE of 9.6%/year and projects 7.0% through 2033 in its analyst report (I will use the latter).

My 7.0% forecast is at the bottom of the long-term-estimate range (mean of five: 9.8%). I will use ’23 EPS of $8.00/share as initial value rather than 2024 Q3 EPS of $8.54 (annualized).

My Forecast High P/E is 20.0. Over the past decade (excluding ’20), high P/E falls from 35.8 (’14) to 20.5 (’23) with a last-5-year mean of 23.9 and a last-5-year-mean average P/E of 19.3. I am below the 10-year range.

My Forecast Low P/E is 14.0. Over the past decade (excluding ’20), low P/E falls from 29.1 (’14) to 13.9 (’23) with a last-5-year mean of 14.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $112.00 is default based on $8.00/share initial value and near the 2022 low price: 26.2% less than previous close and 16.0% less than 52-week low.

The lowest Payout Ratio (PR) over the past decade is 32.3% in ’21 and the last-5-year mean is 51.2%. I am forecasting below the range at 32.0%.

These inputs land DRI in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 6.6%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 10 studies done in the past 90 days (my study and 4 other 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 6.0%, 9.6%, 21.7, 14.5, and 51.2%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 18.0 that is lower than MS (18.1) and higher than mine (17.0).

MS high / low EPS are $13.44 / $8.44 versus my $11.22 / $8.00 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s high EPS of $13.65 is greater than both.

MS LSPF of $116.50 implies a Forecast Low P/E of 13.8 versus the above-stated 14.5. MS LSPF is 4.8% less than the default $8.44/share * 14.5 = $122.38, which results in more conservative zoning. MS LSPF is 4.0% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.3%. Despite the small MS sample size, I try to underestimate every input relative to analyst estimates and/or historical data. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.7 and 2.4 per Zacks and my projected P/E: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 0.92.

DRI is a BUY under $140/share. With a forecast high price ~$224, my personal TAR criterion would be met ~$112 (plus a few bucks, perhaps, as forecasting PR at bottom of the range rather than at last-5-year mean lowers TAR by 1.0%).

DAR Stock Study (5-15-24)

I recently did a stock study on Darling Ingredients Inc. (DAR) with a closing price of $44.78. The previous study is here.

M* writes:

     > Darling Ingredients Inc develops and manufactures sustainable ingredients
     > for customers in the pharmaceutical, food, pet food, fuel, and fertilizer
     > industries. It collects and transforms all aspects of animal by-product
     > streams into ingredients, including gelatin, fats, proteins, pet food
     > ingredients, fertilizers. Also, the company recovers and converts used
     > cooking oil and bakery remnants into feed and fuel ingredients. Darling
     > has three primary business segments: feed ingredients (the majority
     > of revenue), food ingredients, and fuel ingredients. It provides
     > grease trap services for food businesses and sells various equipment
     > for collecting and delivering cooking oil. The company derives
     > the majority of its revenue from customers in North America.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 6.9% and 44.9% (fractional base for the latter). Lines are generally up and narrowing with YOY sales declines in ’15, ’18, and ’19 and EPS declines in ’16, ’18, ’20, and ’23 leaving visual inspection somewhat questionable (sales not consistently up and EPS appearing somewhat cyclical).

Over the past decade, PTPM trails peer and industry averages despite increasing from 2.1% (’14) to 10.6% (’23) with a last-5-year mean of 12.6%. ROE trails peer and industry averages despite increasing from 3.3% (’14) to 14.5% (’23) with a last-5-year mean of 15.6%. Debt-to-Capital is lower than peer and industry averages while ranging from 33.1% in ’21 to 52.4% in ’14 with a last-5-year mean of 41.8%.

Quick Ratio per M* is 0.8, and Interest Coverage is 5.8 per Value Line. The latter gives a B+ Financial Strength rating—down from B++ nine months ago.

With regard to sales growth:

• YF projects YOY 12.1% contraction and 6.0% growth for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 12.0% contraction and 7.7% growth for ’24 and ’25, respectively (4 analysts).
• Value Line projects 3.3% annualized growth from ’23-’28.
• CFRA provides ACE contraction of 12.2% YOY and 2.1% per year for ’24 and ’23-’25, respectively (10).
• M* provides a 2-year ACE of 1.4% contraction.

I am forecasting near the bottom of the range at 1.0% per year.

With regard to EPS growth:

• MarketWatch projects 4.1% and 4.8% per year for ’23-’25 and ’23-’26, respectively (based on 16 analysts).
• Nasdaq.com projects 39.1% YOY and 23.6% per year for ’25 and ’24-’26 [7, 7, and 2 analyst(s) for ’24, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 9.0%.
• YF projects YOY 25.8% contraction and 34.5% growth for ’24 and ’25, respectively (13), along with 5-year annualized growth of 10.0%.
• Zacks projects YOY 29.2% contraction and 39.1% growth for ’24 and ’25, respectively (7).
• Value Line projects annualized growth of 8.5% from ’23-’28.
• CFRA provides ACE of 24.1% YOY contraction and 3.0% growth per year for ’24 and ’23-’25, respectively (14).

My 7.0% per year forecast is at the bottom of the long-term estimate range (mean of three: 9.2%). Initial value will be 2024 Q1 EPS of $3.34 (annualized) rather than ’23 EPS of $3.99/share

My Forecast High P/E is 16.0. Over the past decade, high P/E trends down from 54.9 (’14) to 17.9 (’23) with a last-5-year mean of 21.6 and a last-5-year-mean average P/E of 16.0. I am near the bottom of the range [only ’19 (15.2) is less].

My Forecast Low P/E is 10.0. Over the past decade, low P/E trends down from 41.9 (’14) to 9.8 (’23) with a last-5-year mean of 10.4. My forecast is near the bottom of the range [only ’20 (5.8) and ’23 are less].

My Low Stock Price Forecast (LSPF) of $33.40 is default based on $3.34/share initial value. This is 25.4% less than the previous closing price and 14.4% less than the 52-week low.

These inputs land DAR in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 10.9%.

PAR (using Forecast Average—not High—P/E) of 6.3% 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 135 studies done in the past 90 days (my study and 33 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.6%, 7.0%, 17.8, and 10.4, respectively. I am lower on three of four. Value Line projects a future average annual P/E of 12.5 that is less than MS (14.1) and less than mine (13.0).

MS high / low EPS are $5.74 / $3.98 versus my $4.68 / $3.34 (per share). My high EPS is less due to a lower initial value (i.e. low EPS). Value Line’s high EPS of $6.00 is greater than both.

MS LSPF of $35.90 implies a Forecast Low P/E of 9.0 versus the above-stated 10.4. MS LSPF is 13.3% less than the default $3.98/share * 10.4 = $41.39, which results in more conservative zoning. MS LSPF is 7.5% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 17.4%. I believe MOS to be robust in the current study with the main contributor being use of most recent [depressed] quarterly EPS as initial value.

With regard to valuation, PEG is 1.8 per my projected P/E: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.84.

Stock is down 28.5% over the last nine months. With visual inspection mediocre and management metrics not overly impressive (lagging, downgraded, etc.), I’m personally not in any rush.

DAR is a BUY under $43/share. With a forecast high price of $75, my personal TAR criterion will be met around $37.50.

SBUX Stock Study (5-14-24)

I recently did a stock study on Starbucks Corp. (SBUX) with a closing price of $76.18. Previous studies are here and here.

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. Had 10,628 company-owned stores in the Americas and
     > 8,964 elsewhere. Also had 18,216 licensed stores worldwide (as
     > of 10/1/23). Food & beverage: 78% of ’23 total; CPG and other,
     > 22%. Has joint ventures with Pepsi-Cola and Dreyer’s to develop
     > bottled coffee drinks and ice creams, respectively.

Over the last 10 years excluding 2020 (COVID-19), this large-size company has grown sales and earnings at annualized rates of 8.2% and 10.2%. Lines are mostly up, straight, and parallel except for EPS declines in ’19 and ’22 (FY ends Sep 30).

Over the last decade, PTPM leads industry but trails peer averages while trending down from 19.2% (’14) to 15.0% (’23) with a last-5-year mean of 15.8%. ROE last-5-year mean (excluding ’20) is -57.0%: not atypical as the industry average is negative five times between ’14 and ’22. Debt-to-Capital is greater than peer and industry averages since ’19 with a last-5-year mean of 161.2%.

Before balking at the debt, Quick Ratio is 0.56 and Interest Coverage is 10.6. M* gives an “Exemplary” rating for Capital Allocation and Value Line gives an A rating for Financial Strength. M* also assigns a “Wide” economic moat to the company.

In looking at the 2021 balance sheet, long-term debt, operating lease liability, and deferred revenue are the largest contributors. As discussed in https://bit.ly/3KpHOOj, the latter is a deal made in late 2018 that allows Nestle to market, sell and distribute SBUX consumer packaged goods. SBUX was paid an upfront royalty of $6.7B to be recorded in equal amounts as “other revenue” x40 years. This means the deferred revenue liability will decrease by ~$175M per year until ~2061. The liability is really of no concern as long as SBUX stays in business; without this liability, shareholders’ equity would be positive.

With regard to sales growth:

• YF projects YOY 2.2% and 7.8% for ’24 and ’25, respectively (based on 27 analysts).
• Zacks projects YOY 3.0% and 7.6% for ’24 and ’25, respectively (10 analysts).
• Value Line projects 5.9% per year for ’23-’28.
• CFRA projects growth of 3.3% YOY and 5.8% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year annualized ACE of 5.6% and projects 7.0% per year through 2033 in its analyst report.

I am forecasting toward the lower end of the range at 4.0% per year.

With regard to EPS growth:

• MarketWatch projects 17.7% and 17.3% per year for ’23-’25 and ’23-’26, respectively (based on 33 analysts).
• Nasdaq.com projects 12.9% YOY and 13.4% per year for ’25 and ’24-’26 (13, 12, and 5 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 12.9%.
• YF projects YOY 1.7% and 13.3% for ’24 and ’25, respectively (31), along with 5-year annualized growth of 8.1%.
• Zacks projects YOY 2.5% and 12.9% for ’24 and ’25, respectively (12), along with 5-year annualized growth of 12.8%.
• Value Line projects 9.2% per year from ’23-’28.
• CFRA projects 2.8% YOY and 7.6% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 16.0%.
• M* provides an annualized long-term ACE of 15.5% and projects 15.0% through 2033 in its analyst report.

I am forecasting below the long-term-estimate range (mean of five: 11.6%). I will use ’23 EPS of $3.58/share as the initial value rather than 2024 Q2 EPS of $3.63 (annualized).

My Forecast High P/E is 28.0. Over the past decade, high P/E ranges from 30.4 in ’14 (excluding 19.1 in ’18) to 41.6 in ’22 (excluding 119 in ’20) with a last-5-year mean of 35.9 and a last-5-year-mean average P/E of 29.2. I am below the range.

My Forecast Low P/E is 17.0. Over the past decade, low P/E ranges from 14.6 in ’18 (possibly a downside outlier) to 27.7 in ’16 (excluding 63.3 in ’20) with a last-5-year mean of 22.5. I am forecasting near the bottom of the range (only ’18 is lower).

My Low Stock Price Forecast (LSPF) of $60.90 is default based on $3.58/share initial value. This is 20.1% less than the previous close and 15.2% less than the 52-week low.

The lowest Payout Ratio over the past decade is 35.2% in ’15 and the last-5-year mean is 57.2% (excluding the upside outlier of 208% in ’20). I am forecasting below the range at 35.0%.

These inputs land SBUX in the BUY zone with a U/D ratio of 4.7. Total Annualized Return (TAR) is 15.3%.

PAR (using Forecast Average—not High—P/E) is decent for a large-size company at 10.8%. 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 233 studies done in the past 90 days (my study and 85 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.0%, 9.0%, 30.0, 22.0, and 73.5%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 20.0 that is less than MS (26.0) and mine (22.5).

MS high / low EPS are $5.62 / $3.61 versus my $5.26 / $3.58 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $5.50 is in the middle.

MS LSPF of $72.00 implies a Forecast Low P/E of 19.9 versus the above-stated 22.0. MS LSPF is 9.3% less than the default $3.61/share * 22.0 = $79.42 (currently INVALID), which results in more conservative zoning. MS LSPF is 18.2% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 18.0%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.6 and 2.4 per Zacks and my projected P/E: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.72.

Analyst estimates have come down over the past nine months. Stock price is also down and within the last-five-year range.

SBUX is a BUY under $82/share. My personal TAR criterion is satisfied right now.

CBRE Stock Study (5-13-24)

I recently did a stock study on CBRE Group, Inc. (CBRE, $90.22). Previous studies can be seen here, here, here, and here.

Value Line writes:

     > CBRE Group, Inc. is a worldwide commercial real estate
     > firm, offering services to occupiers, owners, lenders, and
     > investors in the office, retail, industrial, and multi-family
     > segments of the market. Provides facilities management,
     > leasing, property sales, mortgage origination, investment
     > management, and valuation services.

Over the last 10 years, this large-size company has grown sales and earnings at annualized rates of 15.7% and 12.9%, respectively. Visual inspection is mediocre. Revenue is mostly up with a dip in ’20 while EPS dips in ’20, ’22 and ’23 making for somewhat of a cyclical look.

Over the past decade, PTPM leads peer and industry averages despite trending down from 8.6% (’14) to 4.0% (’23) with a last-5-year mean of 5.6%. ROE leads peer and industry averages despite declining from 22.5% (’14) to 12.5% (’23) with a last-5-year mean of 18.7% (downside outlier of 11.4% in ’20 excluded). Debt-to-Capital is lower than peers and about even with the industry while falling from 51.8% (’14) to 36.9% (’23) with a last-5-year mean of 35.3%.

Value Line gives a Financial Strength rating of B++ along with Interest Coverage over 25.0. M* assigns a “Standard” rating for Capital Allocation and reports Quick Ratio of 1.1.

With regard to sales growth:

• YF projects YOY 10.5% and 9.6% for ’24 and ’25, respectively (based on 7 analysts).
• Zacks projects YOY 11.3% and 11.7% for ’24 and ’25, respectively (4 analysts).
• Value Line projects 4.1% annualized growth from ’23-’28.
• CFRA projects 8.7% YOY and 7.3% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 9.1% per year along with its own analyst estimate of 6.3% per year for the next 10 years.

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

With regard to EPS growth:

• MarketWatch projects 23.1% and 26.3% per year for ’23-’25 and ’23-’26, respectively (based on 11 analysts).
• Nasdaq.com projects 25.6% and 20.0% per year for ’24-’26 and ’24-’27 [5, 4, and 2 analyst(s) for ’24, ’26, and ’27].
• YF projects YOY 13.8% and 27.0% for ’24 and ’25, respectively (9), along with 11.0% per year for the next five years.
• Zacks projects YOY 16.4% and 29.1% for ’24 and ’25, respectively (5).
• Value Line projects 13.6% annualized growth from ’23-’28.
• CFRA projects 11.7% YOY and 19.8% per year for ’24 and ’23-’25 along with a 3-year CAGR of 20.0%.
• M* projects long-term growth of 18.6% per year.

I am forecasting below the long-term-estimate range (mean of three: 14.4%) at 10.0% per year. I will use ’23 EPS of $3.15/share as the initial value rather than 2024 Q1 EPS of $3.21 (annualized).

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 16.3 in ’18 and ’19 to 30.5 in ’20 with a last-5-year mean of 24.6 and last-5-year-mean average P/E of 19.3. I am near the bottom of the range (only ’18 and ’19 are lower).

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 10.0 in ’19 to 20.5 in ’23 with a last-5-year mean of 14.0. I am near the bottom of the range [only ’19 and ’21 (10.9) are lower].

My Low Stock Price Forecast (LSPF) is $64.60. The default $47.20 based on $3.15/share initial value seems unreasonably low at 58.1% off the previous close. I will therefore use the 52-week low instead: 28.4% less than the previous close.

These inputs land CBRE in the SELL zone with a U/D ratio of 0. Total Annualized Return (TAR) is 0.2%.

PAR (using Forecast Average—not High—P/E) is an unacceptable -3.3%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR but even that is much lower than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only eight studies done in the past 90 days (my study along with four outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.0%, 14.2%, 23.5, and 13.9, respectively. I am lower across the board. Value Line projects a future average annual P/E of 15.0 that is lower than MS (18.7) and lower than mine (15.5).

MS high / low EPS are $6.20 / $3.17 versus my $5.07 / $3.15 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $7.25 is greater than both.

MS LSPF of $60.80 implies a Forecast Low P/E of 19.2 versus the above-stated 13.9. MS LSPF is 38.0% greater than the default $3.17/share * 13.9 = $44.06, which results in more aggressive zoning. MS LSPF is 5.9% less than mine, however.

TAR (over 15.0% preferred) is much less than MS 9.8%. Despite the very small MS sample, I am forecasting conservatively at every turn. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.6 per my projected P/E: overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] also looks overvalued at 1.5.

What a difference nine months makes in terms of analyst estimates! Mixed growth/contraction numbers have given way to solid growth prospects.

Unfortunately, EPS has fallen in each of the last two years leaving those higher growth estimates to compound on a much lower base. I think this is why future appreciation potential is sapped. Perhaps the fate of a cyclical company is never having a compelling stock study. For me, this underlines the importance of “up, straight, and parallel” so as to not have the risk of historical inconsistency threatening whenever I look at the visual inspection.

CBRE is a BUY under $71/share. The stock needs to fall about 50% in order to satisfy my personal TAR criterion.

Full disclaimer: I currently own shares. While I’m tempted to hold for the impressive future growth estimates, I should probably sell for a small gain and look for something that more easily clears the barbed wire fence.

EPAM Stock Study (5-10-24)

I recently did a stock study on EPAM Systems Inc. (EPAM) with a closing price of $181.93. The previous study is here.

M* writes:

     > EPAM Systems is a global IT services firm that offers
     > platform engineering, software development, and consulting
     > services. EPAM’s largest market is North America, which
     > represents approximately 60% of revenues. Offerings span
     > assisting companies with new technologies, such as
     > artificial intelligence, virtual reality, and robotics.

The stock fell ~27% on May 9 after lower revenue and EPS guidance. I expect analyst estimates will be modified accordingly over the next week(s), but I wanted to do an immediate First Cut to see how it looks through my conservative lenses.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 24.6% and 24.9%, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’23 and EPS dips in ’17, ’22, and ’23.

Over the past decade, PTPM appears to be above peer averages (website not displaying peer or industry lines) while ranging from 10.5% in ’22 to 14.2% in ’20 and ’21 with a last-5-year mean of 12.7%. ROE also appears to lead peer averages while ranging from 7.1% in ’17 to 19.8% in ’21 with a last-5-year mean of 16.1%. Debt-to-Capital appears well below peer averages with a last-5-year mean of 9.1%.

EPAM has a Quick Ratio of 4.5, which is one of the highest I have ever seen. All debt is long-term with no interest due [leases perhaps]. I’m surprised to see Value Line only give a B++ grade for Financial Strength. M* gives a “Standard” rating for Capital Allocation and categorizes the company with a “Narrow” economic moat.

With regard to sales growth:

• YF projects YOY 2.6% and 13.4% growth for ’24 and ’25, respectively (based on 21 analysts).
• Zacks projects YOY 2.3% and 11.5% for ’24 and ’25, respectively (11 analysts).
• Value Line projects 6.5% annualized growth from ’23-’28.
• CFRA projects 3.1% YOY and 7.5% per year for ’24 and ’23-’25.
• M* projects 5-year annualized growth of 6.0% in its analyst note.

I am forecasting below the range at 2.0% per year.

With regard to EPS growth:

• MarketWatch projects annualized growth of 8.0% and 10.5% for ’23-’25 and ’23-’26 (based on 23 analysts).
• Nasdaq.com projects 9.0% YOY and 11.5% per year for ’25 and ’24-’26 (9/9/3 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 17.6%.
• YF projects YOY 3.9% contraction and 16.4% growth for ’24 and ’25, respectively (20), along with 5-year annualized growth of 7.1%.
• Zacks projects YOY 3.9% contraction and 15.2% growth for ’24 and ’25, respectively (14), along with 5-year annualized growth of 3.0%.
• Value Line projects 17.0% annualized growth from ’23-’28.
• CFRA projects 3.4% YOY contraction and 7.6% growth per year for ’24 and ’23-’25 along with a 3-year CAGR of 4.0%.

My 3.0% forecast is at the bottom of the [very large] long-term range. Mean (n = 4) is currently 11.2%, but I expect Value Line and Seeking Alpha to decrease. Initial value is ’23 EPS of $7.06/share.

My Forecast High P/E is 33.0. Over the past decade, high P/E ranges from 34.0 in ’18 to 95.3 in ’22 with a last-5-year mean of 70.3 and a last-5-year-mean average P/E of 47.1. I am below the range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 21.0 in ’14 to 48.0 in ’17 with a last-5-year mean of 28.8 (last-10-year median 27.5). I am below the range.

My Low Stock Price Forecast (LSPF) of $141.20 is default based on the initial value. This is 22.4% less than the previous close and 21.7% less than the 52-week low.

These inputs land EPAM in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) is 3.6%, which is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 26 [nine months ago this number was 152] studies done in the past 90 days (my study and 8 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 9.3%, 42.0, and 26.6, respectively. I am lower across the board. Value Line projects a future average annual P/E of 23.0, which is much lower than MS (34.3) and lower than mine (26.5).

MS high / low EPS are $11.37 / $7.07 versus my $8.18 / $7.06 (per share). My high EPS is lower due to a lower growth rate. Value Line has high EPS at $15.50: much higher than both. As mentioned, I expect this to come down.

MS LSPF of $185.00 (INVALID) implies a Forecast Low P/E of 26.2 vs. the above-stated 26.6. MS LSPF is 1.6% less than the default $7.07/share x 26.6 = $188.06 (also INVALID), which results in more conservative zoning. MS LSPF is 31.0% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 13.2%. Despite the small MS sample size, I think I did a pretty good job of using conservative judgments. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 6.0 and 8.3 per Zacks and my projected P/E: both significantly overvalued due to low growth-rate denominators. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.52.

As mentioned at the top, it will take some time for analysts to digest the earnings announcement and modify estimates. After such a sharp selloff, though, I wanted to see if we might have a screaming BUY right now. M* maintains an updated 4-star rating while Value Line and CFRA updates will be forthcoming. I certainly don’t hear any screaming. In fact, I’m not sure I hear anything at all.

EPAM is a BUY under $173/share. With a forecast high price ~$270, my personal TAR criterion won’t be satisfied until ~$135.

MDT Stock Study (5-9-24)

I recently did a stock study on Medtronic PLC with a previous closing price of $81.55.

M* writes:

     > One of the largest medical-device companies, Medtronic develops
     > and manufactures therapeutic medical devices for chronic diseases.
     > Its portfolio includes pacemakers, defibrillators, heart valves,
     > stents, insulin pumps, spinal fixation devices, neurovascular
     > products, advanced energy, and surgical tools. The company
     > markets its products to healthcare institutions and physicians
     > in the United States and overseas. Foreign sales account for
     > roughly 50% of the company’s total sales.

Over the last 10 years, this large-size company has posted annualized growth of 5.5% and 2.3% for sales and EPS, respectively. Sales dips in ’20 and ’23 while EPS dips in ’15, ’18, ’21, and ’23 (FY ends 4/30 and references to year on the website and Value Line need to be incremented by one). As a result, lines are generally up but not very straight or parallel. While visual inspection could certainly be worse, I’m not surprised to see MDT missing from the First Cut database until now.

Over the past decade, PTPM leads peer and industry averages while ranging from 12.9% in ’21 to 21.8% in ’14 with a last-5-year mean of 15.7%. ROE slightly trails peer and industry averages while declining from 15.6% in ’14 to 7.3% in ’23 with a last-5-year mean of 8.4%. Debt-to-Capital is less than peer and industry averages while falling from 37.9% (’14) to 32.1% (’23) with a last-5-year mean of 32.8%.

Current Ratio is 1.5 and Interest Coverage is 8.9. M* rates “Standard” for Capital Allocation while Value Line gives a Financial Strength rating of A+.

With regard to sales growth:

• YF projects YOY 3.2% and 4.2% for ’24 and ’25, respectively (based on 32 analysts).
• Zacks projects YOY 3.2% and 4.0% for ’24 and ’25, respectively (11 analysts).
• Value Line projects 4.3% annualized growth from ’23-’28.
• CFRA projects 3.9% YOY and per year for ’24 and ’23-’25.
• M* offers a 2-year annualized ACE of 3.9% and projects 4.0% per year through ’28 in its analyst note.

I am forecasting below the range at 3.0% per year.

With regard to EPS growth:

• MarketWatch projects 1.9% and 4.0% per year from ’23-’25 and ’23-’26, respectively (based on 34 analysts).
• Nasdaq.com projects 6.0% and 7.5% per year for ’24-’26 and ’24-’27 [14/6/1 analyst(s) for ’24/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 5.3%.
• YF projects YOY 1.7% contraction and 4.8% growth for ’24 and ’25, respectively (32), along with 5-year annualized growth of 3.5%.
• Zacks projects YOY 1.7% contraction and 5.0% growth for ’24 and ’25, respectively (14), along with 5-year annualized growth of 5.6%.
• Value Line projects 8.2% annualized growth from ’23-’28.
• CFRA projects 1.5% YOY contraction and 1.9% growth per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 4.0%.
• M* projects long-term annualized growth of 9.7%.

I am forecasting below the long-term-estimate range (mean of five: 6.5%) at 3.0% per year. I will use ’23 EPS of $2.82 as the initial value rather than 2024 Q3 $3.14/share (annualized).

My Forecast High P/E is 29.0. Over the past decade, high P/E trends up from 20.8 (’14) to 37.7 (’23) with a last-5-year mean of 37.5 and a last-5-year-mean average P/E of 31.7. My forecast is near the bottom of the range (only ’14 is lower).

My Forecast Low P/E is 22.0. Over the past decade, low P/E trends up from 15.4 (’14) to 26.9 (’23) with a last-5-year mean of 25.9 and last-10-year median of 24.1. My forecast is near the bottom of the range [only ’14 and ’20 (20.4) are lower].

My Low Stock Price Forecast (LSPF) of $62.00 is default based on $2.82/share initial value. This is 24.0% less than previous close and 9.9% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 37.1% (’14) to 96.5% (’23) with a last-5-year mean of 74.2%. I am forecasting below the range at 37.0%.

These inputs land MDT in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 4.3%.

PAR (using Forecast Average—not High—P/E) of 1.9% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead (still less than the risk-free rate).

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 85 studies done in the past 90 days (my study and 21 other 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 4.0%, 6.0%, 32.0, 25.2, and 72.9%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 18.0 that is much lower than MS (28.6) and mine (25.5).

MS high / low EPS are $4.29 / $3.12 versus my $3.27 / $2.82 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS of $7.85 is much greater than both (thereby offsetting the 18.0 from above).

MS LSPF of $68.80 implies a Forecast Low P/E of 22.1 versus the above-stated 25.2. MS LSPF is 12.5% less than the default $3.12/share x 25.2 = $78.62 resulting in more conservative zoning. MS LSPF is 11.0% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 12.4%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.7 and 8.4 per Zacks and my projected P/E, respectively: the latter significantly overvalued due to my low growth rate. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly undervalued at 0.82.

Some may argue this study to be unreasonably harsh. I give a haircut by using initial value at the bottom of a sinusoidal historical EPS uptrend and by lowballing a historically uptrending P/E range. I also minimize PR, which hurts a stock that pays an above-average yield (TAR would be 5.6% for 74.0% PR). In case of overkill, next time I might consider taking initial value at the trendline (unless cyclical forces have already done so).

Remember visual inspection is weak, though, and that justifies a greater MOS and ultimately my recommendation to SELL.

MDT is a BUY under $70/share. With a forecast high price ~$95, my personal TAR criterion will be satisfied ~$48.