Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

MPWR Stock Study (9-21-23)

Posted by on December 18, 2023 at 06:19 | Last modified: September 21, 2023 13:55

I recently did a stock study on Monolithic Power Systems, Inc. (MPWR) with a closing price of $457.78.

M* writes:

     > Monolithic Power Systems is an analog and mixed-signal chipmaker,
     > specializing in power management solutions. The firm’s mission is
     > to reduce total energy consumption in end systems, and it serves
     > the computing, automotive, industrial, communications, and
     > consumer end markets. MPS uses a fabless manufacturing model,
     > partnering with third-party chip foundries to host its
     > proprietary BCD process technology.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 23.4% and 23.2%, respectively. Lines are up, straight, and narrowing except for an EPS dip in ’15. PTPM leads peer averages but trails the industry despite increasing from 10.1% in (’13) to 29.3% (’22) with a last-5-year mean of 22.0%.

Also over the past decade, ROE leads peer averages but trails the industry despite increasing from 7.1% (’13) to 27.9% (’22) with a last-5-year mean of 19.2%. Debt-to-Capital is far below peer and industry averages by remaining debt-free except for 0.3% in ’19 and ’20 for a last-5-year mean of 0.1%.

[As a result] Interest Coverage is NMF (indeterminate) and Quick Ratio is an amazing 4.5. M* rates the company “Standard” for Capital Allocation, and Value Line gives an A+ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the two long-term estimates at 10.0% per year.

With regard to EPS growth:

I am forecasting near the bottom of the 5-long-term estimate range (mean 17.8%) at 12.0% per year. I will use ’22 EPS of $9.05/share as the initial value rather than 2023 Q2 $9.32 (annualized).

My Forecast High P/E is 50.0. Over the past decade, high P/E ranges from 56.9 in ’14 to 115 in ’21 with a last-5-year mean of 84.2. The last-5-year-mean average P/E is 64.0. I am forecasting below the entire range.

My Forecast Low P/E is 33.0. Over the past decade, low P/E ranges from 33.3 in ’22 to 59.7 in ’21 with a last-5-year mean of 43.7. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $298.70 is default based on the initial value of $9.05/share. This is 34.8% less than the previous closing price and 1.0% less than the 52-week low.

Since 2014, Payout Ratio ranges from 33.1% (’22) to 93.0% (’15) with a last-5-year mean of 51.2%. I am forecasting conservatively below the range at 33.0%.

These inputs land MPWR in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 12.1%.

PAR (using Forecast Average—not High—P/E) is 8.2%, which is less than I seek in 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 198 studies (my study and 86 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 Payout Ratio are 15.0%, 16.0%, 60.0, 41.0, and 54.8%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 40.0 is lower than MS (50.5) and lower than mine (41.5).

MS high / low EPS are $19.41 / $8.36 vs. my $15.95 / $9.05 (per share). My high EPS is lower due to a lower growth estimate. Value Line projects $19.00/share for high EPS, which is greater than mine.

MS LSPF of $301.70 implies a Forecast Low P/E of 36.1: less than the above-stated 41.0. MS LSPF is also 12.0% less than the default $8.36/share * 41.0 = $342.76, which results in more conservative zoning. MS LSPF remains 1.0% greater than mine.

My TAR (I prefer >15.0%) is less than MS 19.5%. MOS in the current study appears to be robust.

I track a few [usually conflicting] valuation metrics. PEG is 2.2 and 3.2 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.78. Kim Butcher’s “quick and dirty DCF” prices the stock at 36.0 * [$20.20 – ($5.00 + $3.00)] = $439.20, which suggests the stock to be fairly valued.

MPWR is a BUY under $423/share. To meet my personal TAR criterion, I probably need a price under $400.

Categories: BetterInvesting® | Comments (0) | Permalink

MED Stock Study (10-9-23)

Posted by on December 15, 2023 at 06:17 | Last modified: October 9, 2023 15:20

I recently did a stock study on Medifast, Inc. (MED) with a closing price of $73.87. Previous studies are here and here.

M* writes:

     > Medifast Inc is a US-based company that produces, distributes
     > and sells products concerning weight loss, weight management,
     > and healthy living. The company generates its revenue from
     > point of sale transactions executed over an e-commerce platform
     > for weight loss, weight management, and other consumable
     > health and nutritional products.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 23.5% and 32.4%, respectively. Lines are mostly up, straight, and parallel except for a 2-3-year dip between ’13 and ’16 and EPS in ’22. PTPM trails peers and [slightly] industry averages by increasing from 9.6% (’13) to 11.5% (’22) with a last-5-year mean of 13.4%.

Also over the past decade, ROE leads peer and industry averages by increasing from 20.4% (’13) to an eye-popping 92.0% (’22) with a last-5-year mean of 72.8%. The company has zero long-term debt. That means Debt-to-Capital [as uncapitalized leases] is far below peer and industry averages with a last-5-year mean of 9.3%.

Quick Ratio is 1.3 and Value Line gives a Financial Strength rating of A.

With regard to sales growth:

I am forecasting below the single long-term estimate at 6.0% contraction per year.

With regard to EPS growth:

This is about as scant as analyst coverage can be, which makes a long-term forecast difficult. I basically have -6.7% and +20.0%. The former is possibly duplicated (both actually show as 20.00%) and both are only one analyst. Surprisingly, the negative estimate is Value Line, which predicts 90-185% stock appreciation over the next five years.

With EPS popping 60.0% YOY in ’21, I will [arbitrarily] select $6.43/share from 2019 to be low EPS. My -6.0% forecast growth rate amounts to a high EPS of $12.73/share * (0.94 ^ 5) = $9.34/share.

My Forecast High P/E is 16.0. Over the past decade, high P/E ranges from 17.0 in ’13 to 32.7 in ’17 (56.5 outlier in ’18 excluded) with a last-5-year mean (excluding the outlier) of 22.6 and a last-5-year-mean average P/E of 16.4. I am forecasting below the range.

My Forecast Low P/E is 9.0. Over the past decade, low P/E ranges from 5.6 in ’20 to 18.2 in ’16 with a last-5-year mean of 10.1. I am forecasting near the bottom of the range [only ’20 and ’22 (7.5) are lower].

My Low Stock Price Forecast (LSPF) of $57.90 is default based on $6.43/share. This is 21.6% less than the previous closing price and 17.9% less than the 52-week low. $57.90 is a stock price not seen since 2020.

After dividend inception in ’15, Payout Ratio ranges from 40.9% in ’21 to 71.8% in ’16 with a last-5-year mean of 48.9%. I am forecasting conservatively at 30.0%.

These inputs land MED in the BUY zone with a U/D ratio of 4.7. Total Annualized Return (TAR) is 17.0%.

PAR (using Forecast Average—not High—P/E) of 12.0% is decent 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 138 studies (my study and 42 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 Payout Ratio are 11.5%, 10.5%, 22.0, 11.6, and 50.4%, respectively. I am lower across the board. Value Line’s projected average P/E of 20.0 is higher than MS (15.8) and much higher than mine (12.5).

MS high / low EPS are $20.98 / $11.74 versus my $9.34 / $6.43 (per share). My high EPS is lower due to a lower growth rate. Despite projecting substantial stock appreciation, even Value Line’s $9.00 [high EPS] is lower than mine.

MS LSPF of $92.80—invalid on today’s date—implies a Forecast Low P/E of 7.9: less than the above-stated 11.6. MS LSPF is 31.9% less than the default $11.74/share * 11.6 = $136.18 (also invalid on today’s date), which results in more conservative zoning. MS LSPF is 60.3% greater than mine.

My TAR (over 15.0% preferred) is much less than the 42.5% from MS. Although the latter seems too good to be true, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is not available since Zacks has no long-term estimate and my negative growth rate results in a negative number. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is extremely low at 0.4. Kim Butcher’s “quick and dirty DCF” prices the stock at 18.0 * [$10.10 – ($7.15 + $0.90)] = $36.90, which suggests the stock to be 100.2% overvalued (the high dividend cuts significantly into cash flow).

MED is a BUY under $78 while meeting my TAR criterion right now.

Although the stock seems like a great buy, I am concerned for the future. I have a very low forecast P/E range and very low forecast EPS numbers for a company has historically been good quality. Looking ahead, sparse analyst estimates project a multi-year pullback—not just the next 12-24 months.

Also giving me pause is Medifast’s multi-level-marketing (MLM) business model. Some refer to MLMs as “pyramid schemes” because many have been fraudulent in the past. This is not always the case. Examples of long-standing MLM companies include Amway, Herbalife, Tupperware, Avon, and Mary Kay.

My final objection is the Medifast diet itself. Based on one article, I’m not sure the weight loss is sustainable because the food intake is so low. As a single article written by nutritionists trying to sell their own services, I must take that opinion with a “grain of salt.” Besides, MED has sold well in the past. Whether it will sell well again in the future is the big mystery.

Categories: BetterInvesting® | Comments (0) | Permalink

MKSI Stock Study (9-20-23)

Posted by on December 14, 2023 at 07:06 | Last modified: September 20, 2023 14:42

I recently did a stock study on MKS Instruments Inc. (MKSI) with a closing price of $88.42. The original study is here.

Value Line writes:

     > MKS Instruments is a leading global developer, manufacturer, and
     > supplier of instruments and components used to measure, control,
     > and analyze gases used in semiconductor manufacturing. Also
     > produces instruments for manufacturers of fiber optics, flat-panel
     > displays, gas lasers, and solar cells. Products include pressure-
     > and flow-measurement and control instruments, gauges, injection
     > systems, vacuum-measurement instruments, and valves.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 20.5% and 24.2%, respectively. Lines are mostly up and parallel but EPS looks more cyclical with declines in ’16, ’19 (along with sales), and ’22. PTPM leads peer and industry averages while trending sideways with a last-5-year mean of 17.1%.

Also over the past decade, ROE is about even with peer and industry averages while increasing from 3.6% (’13) to 8.9% (’22) with a last-5-year mean of 14.6%. Debt-to-Capital is lower than peer and industry averages despite increasing from 0% (’13) to 53.5% (’22) with a last-5-year mean of 31.6%.

Interest Coverage is over 25 (Value Line) and Quick Ratio is 1.7 (M*). Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 3.0%.

With regard to EPS growth:

The 4-long-term estimate mean is 1.4% contraction per year [the estimate of highest magnitude is by far YF, and being negative that sinks the whole analysis] and I am forecasting just under at 2.0% contraction per year. I will use ’22 EPS of $5.66/share as the initial value for high EPS and 2023 Q2 EPS of $2.58 (annualized and arbitrary) for low EPS.

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 17.4 in ’15 to 46.3 in ’13 with a last-5-year mean of 28.2. The last-5-year-mean average P/E is 19.6 and the last-10-year median is 22.6. I am forecasting below the latter.

My Forecast Low P/E is 10.0. Excluding outliers of 36.8 in ’13 and 24.6 in ’19, low P/E over the past decade ranges from 7.9 in ’18 to 15.8 in ’16 with a last-5-year mean of 11.0. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) is $64.80. The default based on $2.58/share would be $28.40, which is too extreme. This is a rare instance where I am overriding default and going with a 52-week low that is 26.7% less than the previous close.

Over the past decade, Payout Ratio ranges from 8.7% in ’21 to 95.5% in ’13 with a last-5-year mean of 15.9%. I am forecasting below the entire range at 8.0%.

These inputs land MKSI in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 4.9%.

PAR (using Forecast Average—not High—P/E) is -0.8%, which to me translates to SELL. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even TAR is less than the current risk-free rate (T-bills), though.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 106 studies over the past 90 days (my study and 32 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 9.3%, 10.0%, 20.3, 11.0, and 15.0%. I am lower on everything but Forecast High P/E. Value Line projects an average annual P/E of 27.5: greater than MS (15.7) and greater than mine (16.0).

MS high/low EPS is $28.86/$7.14 versus my $7.88/$6.48 (per share). I initially went with $2.58/share for low EPS, but selecting a higher LSPF effectively raises this.

I think MS high EPS is unreasonably high. The vast majority of MS studies have high EPS in double digits with half over $20.00/share. Yes, MS projects a much higher EPS growth rate, but where are the initial values coming from? Starting with ’22 EPS, $5.56/share * (1.1 ^ 5) = $8.95/share, which is not [even close to] double digits. With 2023 Q1/Q2 EPS lower, they would have to go back—to the ’21 cyclical high? $9.90/share * (1.1 ^ 5) = $19.91/share, which is close to the $20 mentioned. But why skip ’22 and go back to ’21?

I also find MS low EPS to be unreasonable. The mean is negative (-$1.45) because many studies use ’23 Q2 EPS of -$26.21. I can’t accept a negative number for LSPF or low EPS. This may occur due to a nonrecurring expense or temporary condition of which decreased demand in a cyclical industry could be one. However, analyst estimates projecting contraction are not projecting losses. That’s a big difference. An extended period of negative EPS is not representative of a quality stock amenable to the SSG methodology especially because the math becomes convoluted and invalid.

While the previous discussion is suggestive to me of widespread confusion, the MS LSPF median of $64.80 is identical to mine and the 52-week low price. Of course, this makes complete sense! The MS mean is -$7.50 due to 26 studies with LSPF in the negative triple digits but—I’m going to ignore that and focus on what I consider to be small victories for us all.

My TAR (over 15.0% preferred) is just a fraction of MS 39.2%. Due largely to the triple-digit high EPS numbers, I’ve never seen TAR so high. Comparatively speaking, MOS looks gigantic but I think that’s fooling myself as deep down I consider MS TAR to be NMF. And to be completely honest, I did not feel I was being all that conservative in choosing my inputs (e.g. some are slightly under the average but not below the entire range, my Forecast High P/E is not below the historical average P/E, etc.). I would categorize MOS to be moderate in the current study.

I track a few [wildly conflicting] valuation metrics. PEG is 3.1 and 1.7 per Zacks and my projected P/E, respectively: both overvalued [interestingly, the latter is positive because both projected P/E and growth rate are negative]. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is NMF at -0.2 due to negative EPS in most recent quarter. Kim Butcher’s “quick and dirty DCF” prices the stock at 19.0 * [$14.10 – ($0.92 + $2.80)] = $123.05, which suggests the stock to be 55.2% undervalued. I don’t even know where to go with that. NMF? Cash flow is good?!

For what it’s worth, I have MKSI a BUY under $76/share. To meet my 15.0% TAR criterion, I would need a price closer to $55.

More than anything else, for me to feel good about investing in this stock I need to see a more convincing outlook for EPS growth, which we don’t currently have.

Categories: BetterInvesting® | Comments (0) | Permalink

AMKR Stock Study (9-19-23)

Posted by on December 12, 2023 at 06:42 | Last modified: September 19, 2023 14:36

I recently did a stock study on Amkor Technology, Inc. (AMKR) with a closing price of $22.84.

M* writes:

     > Amkor Technology Inc is a provider of outsourced semiconductor
     > packaging and test services to integrated device manufacturers,
     > fabless semiconductor companies, and contract foundries. The
     > firm’s products are organized into two streams: advanced
     > products, including flip chip, wafer-level processing and
     > testing services; and mainstream products, including wirebond
     > packaging and testing. Roughly a third of the firm’s revenue
     > is generated in the United States, with the rest coming from
     > China, Ireland, Japan, Malaysia, Taiwan, Singapore, and
     > countries across the world.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.9% and 23.3%, respectively. Visual inspection is mediocre. Lines are generally up with pullbacks and narrowing. Sales and EPS decline in ’15 and ’19 with EPS also declining in ’18. The semiconductor industry is known to be highly cyclical. If by definition that means we never get a beautiful “up, straight, and parallel” graph, then I doubt that means we should altogether avoid investment. Perhaps it’s a matter of personal preference.

Over the past decade, PTPM lags peer and industry averages despite trending higher from 4.2% (’13) to 12.1 (’22) with a last-5-year mean of 7.9%. ROE lags the industry while tracking even with peers by increasing from 11.8% (’13) to 21.9% (’22) with a last-5-year mean of 14.9%. Debt-to-Capital is higher than peer and industry averages despite trending down from 63.4% (’13) to 28.1% (’22) with a last-5-year mean of 36.4%. The trifecta goes against this company for now.

Interest Coverage is 11.8 and Quick Ratio is 1.5. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the long-term estimate at 2.0% per year.

With regard to EPS growth:

Number of analysts behind these estimates is very few. Matching ’23 and ’24 numbers for YF and Zacks raises the specter of data duplication, but thankfully long-term estimates vary. Given only 3 of those and projections of near-term contraction, I am forecasting flat growth (below the 3.2% mean) and using ’22 EPS of $3.11/share as high EPS. For low EPS, I will use ’23 Q2 EPS [arbitrary] of $2.35/share (annualized).

My Forecast High P/E is 12.0. Over the past decade, high P/E has ranged from 9.4 in ’22 to 42.2 (upside outlier in ’15) with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 12.2. I am forecasting below the latter.

My Forecast Low P/E is 7.0. Over the past decade, low P/E has ranged from 3.9 in ’20 to 16.7 in ’15 (upside outlier) with a last-5-year mean of 7.5. The last-10-year median is 7.4. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $16.40 is default based on $2.35/share initial value. This is 28.2% less than the previous closing price and 1.9% greater than the 52-week low.

Since a dividend was initiated in 2020, Payout Ratio has been 2.9%, 6.7%, and 7.2%. I am forecasting conservatively near the bottom of the range at 3.0%.

These inputs land AMKR in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.6%. 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 21 studies over the past 90 days (my study and 9 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.5%, 7.3%, 13.4, 7.6, and 4.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 14.0, which is higher than MS (10.5) and mine (9.5).

MS high/low EPS is $3.57/$2.28 (per share) versus my $3.11/$2.35. Value Line projects $4.00/share [for high EPS], which is greater than both.

MS LSPF of $15.00 implies a Forecast Low P/E of 6.6 (vs. the above-stated 7.6). This is 13.4% less than the default value of $2.28 * 7.6 = $17.33, which represents more conservative zoning. MS LSPF is also 8.5% less than mine.

While the MS sample size is too small for a valid comparison, I consider MOS to be at least moderate in this study because all inputs are conservative [i.e. at the bottom (or below) respective ranges, below the mean, etc.]. Giving me pause is my TAR (over 15.0% preferred) being only 3.0% less [I often see this difference larger] than MS 13.6%. Also giving me pause is my EPS forecast far above the bottom of the analyst estimates’ range (-10.9%), but if any growth occurs at all then my 3.2% cushion is more than sufficient.

I track a few different valuation metrics. PEG is not available due to my 0% growth rate [indeterminate result] and Zacks’ absence of a long-term estimate. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 6.5 * [$7.00 – ($0.44 + $1.60)] = $32.24, which implies a 29.2% discount.

AMKR is a BUY under $21/share. With a forecast high price of $37.30, I need a stock price closer to $18.50 in order to meet my TAR criterion. In this instance, I am tempted to stick with that.

Categories: BetterInvesting® | Comments (0) | Permalink

MKTX Stock Study (10-4-23)

Posted by on December 9, 2023 at 06:23 | Last modified: October 7, 2023 10:00

I recently studied MarketAxess Holdings, Inc. (MKTX) with a closing price of $204.76. The original study is here.

M* writes:

     > Founded in 2000, MarketAxess is a leading electronic fixed-income
     > trading platform that connects broker/dealers and institutional
     > investors. The company is primarily focused on credit based fixed
     > income securities with its main trading products being U.S.
     > investment-grade and high-yield bonds, Eurobonds, and Emerging
     > Market corporate debt. Recently the company has expanded more
     > aggressively into Treasuries and municipal bonds with the
     > acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021,
     > respectively. The company also provides pre- and post-trade
     > services with its acquisition of Regulatory Reporting Hub from
     > Deutsche Börse Group in 2020 adding to its product offerings.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 14.2% and 18.2%, respectively. Lines are mostly up, straight, and parallel except for EPS dips in ’21 and ’22. PTPM leads peer and industry averages while recently trending lower from 44.9% in ’13 to 51.8% in ’16 to 47.1% in ’22 with a last-5-year mean of 49.9%.

Also over the past decade, ROE leads peer and industry averages going from 23.8% in ’13 to 29.5% in ’19 then decreasing to 24.6% in ’22 with a last-5-year mean of 28.3%. Debt-to-Capital is much lower than peer and industry averages as the company has no debt (uncapitalized leases only): last-5-year mean is 7.0%.

Interest Coverage is over 900 while Quick Ratio is 2.3. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

The estimates have come down since last quarter. I am forecasting near the bottom of the range at 7.0% per year.

With regard to EPS growth:

My 8.0% forecast is below the range of six long-term estimates (mean 11.1%). I will use ’22 EPS of $6.65/share as the initial value, which is very close to 2023 Q2 EPS of $6.71 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 39.6 (’13) to 62.1 (’22) with a last-5-year mean of 71.0. The last-5-year-mean average P/E is 54.9. I am forecasting below the range and closer to the current P/E of 30.5.

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 18.9 (’13) to 32.7 (’22) with a last-5-year mean of 38.8. The last-10-year median is 33.9. I am forecasting near the bottom of the range (only ’13 is lower).

My Low Stock Price Forecast (LSPF) of $192.90 is default based on $6.65/share initial value. This is 22.1% less than the previous closing price and 20.2% less than the ’21-’23 low.

Over the past decade, Payout Ratio ranges from 28.7% in ’13 to 42.1% in ’22 with a last-5-year mean of 37.2%. I am forecasting below the range at 28.0%.

These inputs land MKTX on the BUY threshold with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.6%.

PAR (using Forecast Average—not High—P/E) of 8.0% is less than I seek for a small-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 only 53 studies (my study and 21 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 Payout Ratio are 11.2%, 12.3%, 50.0, 33.7, and 34.2%, respectively. I am lower across the board. Value Line’s projected average P/E of 40.0 is lower than MS (41.9) and much higher than mine (28.5).

MS high / low EPS are $12.02 / $6.67 versus my $9.77 / $6.65 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $12.25. I am lowest of the three.

MS LSPF of $209.40—invalid on today’s date—implies a Forecast Low P/E of 31.4: less than the above-stated 33.7. MS LSPF is 6.8% less than the default $6.67/share * 33.7 = $224.78, which is also invalid on today’s date. MS LSPF is a whopping 31.2% greater than mine.

My TAR (over 15.0% preferred) is less than the 21.7% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.7 and 3.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is extremely undervalued at 0.56.

MKTX is a BUY under $205. With a forecast high price of $342, TAR should meet my 15% criterion around $171/share.

Categories: BetterInvesting® | Comments (0) | Permalink

TSM Stock Study (9-18-23)

Posted by on December 8, 2023 at 07:08 | Last modified: September 18, 2023 14:51

I recently did a stock study on Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) with a closing price of $89.25. Previous studies are here and here.

M* writes:

     > Taiwan Semiconductor Manufacturing Co. is the world’s largest
     > dedicated chip foundry, with almost 60% market share. TSMC
     > was founded in 1987 as a joint venture of Philips, the
     > government of Taiwan, and private investors. It went public
     > as an ADR in the U.S. in 1997. TSMC’s scale and high-quality
     > technology allow the firm to generate solid operating margins,
     > even in the highly competitive foundry business. Furthermore,
     > the shift to the fabless business model has created tailwinds
     > for TSMC. The foundry leader has an illustrious customer
     > base, including Apple, AMD, and Nvidia, that looks to apply
     > cutting-edge process technologies to its semiconductor designs.

Over the past decade, this mega-size (>$50B sales per year) company has grown sales and EPS at annualized rates of 13.5% and 16.4%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’19. PTPM is greater than peer and industry averages and recently trending higher, increasing from 36.2% (’13) to 50.5% (’22) with a last-5-year mean of 42.2%.

Also over the past decade, ROE is about even with peer and industry averages despite increasing from 23.1% in ’13 to 37.4% in ’22 with a last-5-year mean of 27.6%. Debt-to-Capital is less than peer and industry averages, ranging from 9.4% in ’17 to 26.0% in ’21 with a last-5-year mean of 17.2%.

Interest Coverage is >88 and Quick Ratio is 2.1. Value Line gives an A++ rating for Financial Strength. M* gives an “Exemplary” rating for Capital Allocation and assigns the company a “Wide” (and stable) economic moat.

With regard to sales growth:

I am forecasting below both long-term estimates at 5.0% per year.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of six: 6.3%) at 4.0% per year. I will use 2023 Q2 EPS of $6.06/share (annualized) as the initial value rather than ’22 EPS of $6.43.

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 14.1 (’15) to 34.8 (’21) with a last-5-year mean of 27.4. The last-10-year median is 19.9, and the last-5-year-mean average P/E is 20.3. I am forecasting below the latter two.

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 9.2 (’22) to 15.5 (’19) with a last-5-year mean of 13.2 (26.3 outlier in ’21 excluded). I am forecasting near the bottom of the range [only ’22 and ’15 (9.5) are less].

My Low Stock Price Forecast (LSPF) of $64.70 is default based on $6.06/share initial value. This is 27.5% less than the previous closing price but 8.9% above the 52-week low.

Over the past decade, Payout Ratio ranges from 28.6% (’22) to 58.8% (’18) with outliers from ’15 (0%) and ’19 (90.6%) excluded. The last-5-year mean (excluding ’19) is 46.1%. I am forecasting below the entire range at 28.0%.

These inputs land TSM in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 10.9%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 5.6%. 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 317 studies (my study and 131 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 Payout Ratio are 8.9%, 8.0%, 23.0, 14.0, and 55.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (18.5) but higher than mine (14.5).

MS high / low EPS are $8.90 / $5.96 vs. my $7.37 / $6.06 (per share). Value Line’s high EPS is $10.00. I am lowest of the 3.

MS LSPF of $69.00 implies a Forecast Low P/E of 11.6, which is less than the above-stated 14.0. MS LSPF is 17.3% less than the default $5.96/share * 14.0 = $83.44, which results in more conservative zoning. MS LSPF is still 6.7% greater than mine.

My TAR (over 15.0% preferred) is much less than the 19.4% from MS.

Despite raising the P/E range compared to my previous TSM study, MOS seems robust.

I track a few different [usually conflicting] valuation metrics. PEG is 3.1 and 3.5 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.7. Kim Butcher’s “quick and dirty DCF” prices the stock at 13.0 * [$14.80 – ($2.60 + $10.00)] = $28.60, which suggests the stock to be 68.0% undervalued [this strikes me as NMF; I have emailed Kim to ask about it].

Per this study, TSM is a BUY under $80. With a forecast high price at $140.10, TAR should meet my personal [15%] criterion around $70/share.

Categories: BetterInvesting® | Comments (0) | Permalink

TPH Stock Study (9-14-23)

Posted by on December 6, 2023 at 06:55 | Last modified: September 14, 2023 14:02

I recently did a stock study on Tri Pointe Homes Inc. (TPH) with a closing price of $29.19.

M* writes:

     > Tri Pointe Homes Inc is an American construction company that
     > focuses on residential construction. The company designs and
     > builds single-family homes and condominiums through its portfolio
     > of six regional housing brands. Its largest regional brands
     > include Maracay Homes, which operates in Arizona, and TRI Pointe
     > and Pardee Homes, which operate in California, Nevada, and
     > Colorado. From a geographic perspective, California is TRI
     > Pointe’s largest source of revenue, followed by Arizona and
     > Nevada. The company also operates in Texas, Oregon, and
     > Virginia. TRI Pointe completes approximately 4,000 homes
     > annually with an average selling price around $500,000. TRI
     > Pointe also is involved in the sale and development of land.

Since 2014 (’13 excluded due to fractional EPS and substantially lower sales), this medium-size company has grown sales and earnings at annualized rates of 10.5% and 26.1%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’19 and EPS declines in ’16 and ’19. PTPM leads peer averages but lags the industry while trending up from 7.5% to 17.8% in ’23 with a last-5-year mean of 13.0%.

Also since 2014, ROE lags peer and industry averages despite trending up from 6.6% to 21.3% in ’23 with a last-5-year mean of 15.0%. Debt-to-Capital is less than peer and industry averages while trending down from 44.6% in ’14 to 33.9% in ’23 with a last-5-year mean of 37.5%.

Quick Ratio is an impressive 4.8 and Value Line gives a B+ rating for Financial Strength. M* provides no Interest Coverage number for the company, but I doubt the existence of any liquidity concerns with a Current Ratio of 18.7.

With regard to sales growth:

I am forecasting just below the long-term estimate at -1.0% per year.

With regard to EPS growth:

I am forecasting below the 6-long-term-estimate mean (4.1%) at 2.0% per year, which is nowhere near the bottom of the range. I will use 2023 Q2 EPS of $4.76/share (annualized) as the initial value rather than ’22 EPS of $5.54.

My Forecast High P/E is 6.0. High P/E has trended down from 34.5 in ’14 to 5.1 in ’22 with a last-5-year mean of 8.6. The last-5-year-mean average P/E is 6.5. I am forecasting below the latter.

My Forecast Low P/E is 4.0. Low P/E has trended down from 21.7 in ’14 to 2.6 in ’22 with a last-5-year mean of 4.5. I am forecasting near the bottom of the range [only ’22 and ’20 (2.7) are lower].

My Low Stock Price Forecast (LSPF) of $23.50 is default based on $4.76/share initial value. This is 34.9% less than the previous closing price but 30.1% above the 52-week low.

These inputs land TPH in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 1.4%.

PAR (using Forecast Average—not High—P/E) is -2.2%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead 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 21 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, and Forecast Low P/E are 8.8%, 10.0%, 7.0, and 4.5, respectively. I am lower across the board. Value Line’s projected average annual P/E of 12.0 is much higher than MS (5.8) and mine (5.0).

MS high / low EPS are $8.39 / $4.76 vs. my $5.26 / $4.76. My high EPS is lower due to a lower growth rate. Value Line projects $4.15/share for high EPS, which is lower than both.

MS Low Stock Price Forecast (LSPF) of $18.00 implies a Forecast Low P/E of 3.8, which is less than the above-stated 4.5. MS LSPF is 16.0% less than the default $4.76/share * 4.5 = $21.42, which results in more conservative zoning. MS LSPF is also 5.3% less than mine.

My TAR (over 15.0% preferred) is far less than MS 16.0%, which confirms a robust MOS behind the current study. Corroborating the small MS sample size is Value Line’s projected forecast high price. MS has $8.39 * 7.0 ~ $59.00: near the top of Value Line’s ’26-’28 projected range at $60.00. I am worlds apart at $31.50/share.

I track a few different [conflicting] valuation metrics. PEG is 0.7 and 3.0 per Zacks and my projected P/E: undervalued vs. overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.0. Kim Butcher’s “quick and dirty DCF” prices the stock at 11.0 * [$4.50 – ($0.00 + $0.15)] = $47.85, which suggests the stock to be 39.0% undervalued.

I am not surprised to see TPH far from the BUY zone given a 72% run-up over the past year. Despite projecting average long-term returns (vs. my 1.4% TAR), the Value Line analyst agrees this is probably a stock to avoid at the current quotation.

Categories: BetterInvesting® | Comments (0) | Permalink

CLFD Stock Study (9-8-23)

Posted by on December 4, 2023 at 06:57 | Last modified: September 13, 2023 16:09

I recently did a stock study on Clearfield Inc. (CLFD) with a closing price of $33.39. The previous study is here.

M* writes:

     > Clearfield Inc mainly designs, manufactures, and distributes
     > fiber protection, fiber management and fiber delivery solutions
     > for communications networks. It provides a range of products
     > including copper assemblies, cassettes, box enclosures, fiber
     > connectors, frames, microduct, terminals, vaults, pedestal
     > inserts, FieldSmart, WaveSmart, and CraftSmart. The company
     > has a global presence with the majority of the revenue derived
     > from the United States. The company has two reportable segments
     > namely Clearfield segment and Nestor cables segment. The
     > majority of revenue is derived from Clearfield segment.

Over the past decade, this small-size company has grown sales and earnings at annualized rates of 15.2% and 20.2%, respectively. PTPM leads peer averages but lags the industry by dropping from 14.1% in ’13 to 7.6% in ’17 before trending higher in ’20-’22 to 23.6%. The last-5-year mean is 13.2%.

Also over the past decade, ROE leads peer and industry averages while tracing a similar asymmetric-U pattern ranging from 6.0% in ’17 to 35.9% in ’22 with a last-5-year mean of 15.8%. Debt-to-Capital is zero until ’20 (3.3%), has a last-5-year mean of 5.1%, and is much lower than peer and industry averages.

With regard to visual inspection, lines are exponential, jagged, and narrowing including a sales dip in ’17 and declining EPS in ’15 and ’17. One thing I don’t like is ’16 EPS not being eclipsed until ’21. ’16 EPS is up 73.5% YOY so this could be due to a nonrecurring anomaly [I should check the 10-K]. Even with that excluded, ’14 EPS is not eclipsed until ’20. I question whether we see consistent historical growth despite a nice annual growth rate.

If the visual inspection fails, then the stock could still be a candidate for a speculative position. Keeping this in mind, I will continue the analysis.

Interest Coverage and Quick Ratio are a laudable 71 and 5.3, respectively, and Value Line rates the company B+ for Financial Strength. I’m surprised the rating isn’t higher.

With regard to sales growth:

I am (arbitrarily) taking a 67% haircut from the one [Value Line] long-term estimate to get my forecast of 5.0% per year.

With regard to EPS growth:

Two long-term estimates are not much to go on. Value Line is a bit shocking being negative in the face of solid projected sales growth. I am forecasting above the long-term-estimate mean (1.3%) at 2.0%. However, given the bearish short- and long-term outlook, I will use the ’21 EPS of $1.47 (vs. $3.55 for ’22) as the initial value to get a high EPS of $1.62/share.

One other number I find shocking is MarketWatch’s ’22-’25 projection of 31.4%. This comes out of nowhere (’22-’24 is quite negative) and suggests substantial recovery in ’25. The high/low/average values all being equal for this estimate suggest one analyst for that $7.24/share. This is a 260% YOY increase from the ’24 high estimate [and an even greater percentage change from the ’24 average or low estimate]. I wonder what that analyst thinks will happen for CLFD in 2025?

My Forecast High P/E is 30.0. Over the past decade, high P/E has ranged from 31.9 (’21) to 77.1 (’17) with a last-5-year mean of 42.0. The last-5-year-mean average P/E is 30.9, but the current P/E is 10.2. It’s hard to wrap my head around these big numerical differences. 10.2 seems way too low, but 42.0 seems way too high. I am forecasting below the entire range and just below the 5-year-mean average P/E.

My Forecast Low P/E is 16.0. Over the past decade, low P/E has ranged from 11.1 (’13) to 40.4 (’17) with a last-5-year mean of 19.7. The last-10-year median is 22.2. I am forecasting toward the lower end of the range [’13, ’22 (12.4), ’21 (13.4), and ’20 (15.7) are lower].

My Low Stock Price Forecast (LSPF) of $23.50 is default based on $1.47/share initial value. This is 29.6% less than the previous close and 21.7% less than the 52-week low.

These inputs land CLFD in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) is 2.6%, 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 167 studies (my study and 56 other 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 12.8%, 10.0%, 26.4, and 12.4, respectively. With a mean of 23.0, my P/E range is higher than Value Line’s projected average annual P/E of 20.0, which in turn is higher than MS (19.4). No MOS to see here.

MS high / low EPS are $5.69 / $3.59 vs. my $1.62 / $1.47 (per share). This is where my study gains huge MOS points. Even Value Line, which projects negative long-term growth, has a higher estimate ($3.00/share).

MS LSPF of $30.40 implies a Forecast Low P/E of 8.5, which is lower than the above-stated 12.4. MS LSPF is 31.7% less than the default $3.59/share * 12.4 = $44.52 [invalid on today’s date], which results in more conservative zoning [that needs to be lowered even further]. MS LSPF is 29.4% greater than mine.

My TAR (over 15.0% preferred) is much less than the 30.0% from MS.

MOS backing the current study is robust.

With regard to valuation metrics, PEG is not available due to an effectively negative growth rate in my study and no 5-year forecast provided by Zacks. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.33.

CLFD is a BUY under $29/share. With a forecast high price of $48.70, my TAR criterion should be met closer to $24.35 until/unless something convinces me a more bullish EPS outlook is warranted.

Categories: BetterInvesting® | Comments (0) | Permalink

WAL Stock Study (10-4-23)

Posted by on December 1, 2023 at 06:47 | Last modified: October 4, 2023 11:25

I recently studied Western Alliance Bancorp (WAL) with a closing price of $41.90. Previous studies are here and here.

M* writes:

     > Western Alliance Bancorporation is a Las Vegas-based holding
     > company with regional banks operating in Nevada, Arizona, and
     > California. The bank offers retail banking services and focuses
     > on mortgages for retail customers and commercial loans, mainly
     > for real estate. The bank also has an investment advisory
     > business that manages investment portfolios for Western clients
     > and clients of other banks.

Over the past decade, this medium-size bank has grown sales and EPS at annualized rates of 22.3% and 24.5%, respectively. Lines are mostly up, straight, and parallel (including total assets). PTPM leads peer and industry averages while trending up from 41.2% (’13) to 57.5% (’22) with a last-5-year mean of 56.6%.

Also over the past decade, ROE leads peer and industry averages while trending up from 16.8% (’13) to 21.0% (’22) with a last-5-year mean of 18.4%. Debt-to-Capital is lower than peer and industry averages despite increasing recently from 13.5% in ’19 to 55.7% in ’22 with a last-5-year mean of 26.2%.

Value Line rates the company B+ for Financial Strength.

ROAA increases from 1.36% in ’13 to 1.69% in ’22 with a last-5-year mean of 1.85%. This has been above 1.50% every year since ’15 until the current reading of 1.36%, which is a 10-year low.

With regard to sales growth:

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

With regard to EPS growth:

Only one of five long-term estimates is negative and its magnitude is the largest of all. My skepticism is somewhat offset by the fact that it (YF) has not changed in two quarters. My forecast is toward the lower end of the range (mean of five: 3.3%) at 1.0% per year. I will use an initial value of 2023 Q2 EPS $8.33/share (annualized) rather than ’22 EPS of $9.70.

My Forecast High P/E is 10.0. Over the past decade, high P/E has gone from 18.7 (’13) to 12.9 (’22) with a last-5-year mean of 13.4. My forecast—the last-5-year-mean average P/E of 10.0—is below the entire 10-year high P/E range.

My Forecast Low P/E is 3.0. Over the past decade, low P/E has gone from 8.2 (’13) to 5.7 (’22) with a last-5-year mean of 6.7. I am forecasting below the entire range (lowest was 4.1 in ’20).

My Low Stock Price Forecast (LSPF) of $25.00 is default based on $8.33/share initial value. This is 40.3% below the previous close and more than quintuple the 52-week low price of $7.50 seen the week of 3/8/23 (Black Swan, anyone?). Short of failing and having to shudder its doors, I don’t think $7.50 will be tested anytime soon

WAL starts paying a dividend in 2019 with an average Payout Ratio of 14.7% ever since. I am forecasting below the range [10.3% – 19.8%] at 9.0%.

These inputs land WAL in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 15.4%.

PAR (using Forecast Average—not High—P/E) is 6.4%, 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 instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 237 studies (my study and 95 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 Payout Ratio are 11.9%, 10.0%, 11.4, 6.1, and 14.2%, respectively. I am lower across the board.

MS high / low EPS are $14.04 / $8.76 versus my $8.75 / $8.33 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $30.10 implies a Forecast Low P/E of 3.4: much less than the above-stated 6.1. MS LSPF is 43.7% less than the default $8.76/share * 6.1 = $53.44 (invalid on today’s date), which results in more conservative zoning. Despite this huge discrepancy, MS LSPF remains 20.4% greater than mine.

My TAR (over 15.0% preferred) is much less than the 28.6% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 0.6 and 5.3 per Zacks and my projected P/E, respectively. I tend to discount calculations with low/fractional component as NMF and the latter uses my extremely low 1.0% growth rate (MS is 10-fold larger). The 0.6 translates to significantly undervalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is 0.53. In this case, two meaningful computations do not conflict.

WAL is a BUY under $40. With a forecast high price of $87.50, TAR should meet my 15% criterion around $43.75/share. Unusually, it’s already there even before crossing above the 3:1 U/D threshold. Especially given the conservative inputs used in this study, I would probably feel comfortable investing right now.

Categories: BetterInvesting® | Comments (0) | Permalink

PKG Stock Study (9-12-23)

Posted by on November 30, 2023 at 06:46 | Last modified: September 12, 2023 13:53

I recently did a stock study on Packaging Corp. of America (PKG $146.26). My other studies are here and here.

M* writes:

     > Packaging Corp of America is the third-largest containerboard
     > and corrugated packaging manufacturer in the United States.
     > It produces over 4 million tons of containerboard annually.
     > The company’s share of the domestic containerboard market
     > is about 10%. The firm differentiates itself from larger
     > competitors by focusing on smaller customers and operating
     > with a high degree of flexibility.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 6.8% and 9.8%. Lines are mostly up and parallel except for a sales decline in ’15 and sales + EPS declines in ’14, ’19, and ’20. PTPM is higher than peer and industry averages, trending up from 11.3% in ’13 to 16.1% in ’22 with a last-5-year mean of 13.4%.

Also over the past decade, ROE is roughly even with industry averages, trending lower from 39.9% in ’13 to 24.9% in ’22 with a last-5-year mean of 22.8%. Debt-to-Capital is lower than peer and industry averages, trending down from 66.2% in ’13 to 43.2% in ’22 with a last-5-year mean of 45.5%.

Quick Ratio and Interest Coverage are 2.0 and 19.6, respectively. M* gives a “Standard” rating for Capital Allocation while Value Line rates the company A for Financial Strength.

With regard to sales growth:

I am forecasting conservatively below the long-term range at 1.0%.

With regard to EPS growth:

My first attempt is to forecast -1.0% per year. This is below the 5-long-term-estimate mean (0%).

Things get tricky with a negative growth rate [which arguably should never happen for a high-quality stock] because I need to ensure high EPS exceeds low EPS. For high EPS, I will use ’21 EPS of $8.83/share: more than a 1% annualized discount for five years off 2023 Q2 EPS of $9.46/share (annualized). Low EPS will be ’19 EPS of $7.34/share.

While this sounds good, it results in a forecast high price lower than the previous close (invalid study).

For my second attempt, I will exclude the highest and lowest estimates. I’m really perplexed by the YF number anyway as its absolute value seems extreme compared to the others. This results in a 3-estimate mean and my forecast of 3.0%. As an initial value, I will use 2023 Q2 $9.46/share (annualized) rather than ’22 EPS of $11.03.

My Forecast High P/E is 14.0. Over the past decade, high P/E ranges from 14.4 (’13) to 28.7 (upside outlier in ’20) with a last-5-year mean (outlier excluded) of 16.4. The last-5-year-mean average P/E is 14.2. I am forecasting below the entire range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 8.5 (’13) to 14.7 (’20) with a last-5-year average of 12.0. I am forecasting toward the bottom of the range (10-year median is 11.6).

My Low Stock Price Forecast (LSPF) is $110.60. The default value is $94.60, which is 35.3% less than the previous close and 14.5% less than the 52-week low. Because the analyst reports see headwinds easing by the end of ’23, I don’t see occasion for that much of a haircut. I will therefore use the 52-week low, which is 24.4% less than the previous close.

Over the past decade, Payout Ratio has ranged from 33.8% (’13) to 69.6% (upside outlier in ’20) with a last-5-year mean (excluding the outlier) of 42.5%. I am forecasting toward the lower end of the range at 34.0%.

These inputs land PKG in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 3.6%.

PAR (using Forecast Average—not High—P/E) is 0.7%, 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 the 3.4% instead—still much lower than I seek.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 48 studies over the past 90 days (my study along with 16 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 5.3%, 6.6%, 16.8, 11.6, and 45.5%. I am lower across the board. Value Line projects a future average annual P/E of 19.0. This is [much] higher than MS (14.2) and mine (12.0).

MS high / low EPS are $14.00 / $9.83 vs. my $10.97 / $9.46 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $109.90 implies a Forecast Low P/E of 11.2, which is lower than the above-stated 11.6. MS LSPF is 3.6% less than the default $9.83/share * 11.6 = $114.03, which results in more conservative zoning. MS LSPF is only 0.6% less than mine.

My TAR (over 15.0% preferred) is much less than the 13.0% from MS.

MOS backing the current study seems robust.

I track a few different valuation metrics. PEG is 3.6 and 5.0 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 0.95. Kim Butcher’s “quick and dirty DCF” prices the stock at 22.0 * [$20.65 – ($6.50 + $7.85)] = $75.60, which suggests the stock to be 48.3% overvalued.

I would look to re-evaluate PKG under $121/share. With a forecast high price of $153.50, I would estimate TAR to qualify at or below $76.75/share. Hopefully as the quarters go by, we can get some resolution to the Value Line vs. YF long-term estimates.

Categories: BetterInvesting® | Comments (0) | Permalink
Older Entries Newer Entries