MBUU Stock Study (7-24-23)

I recently did a stock study on Malibu Boats Inc. (MBUU) with a closing price of $57.64. The original study is here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace active lifestyles.

Over the past decade, this medium-size (as of 2022) company has grown sales and earnings at annualized rates of 25.7% and 33.6% [75.6% if the 2014 loss is included], respectively. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’14, ’18, and ’20. PTPM over the decade is higher than peer and industry averages and has increased from 10.8% in ’13 to 17.3% in ’22 with a last-5-year mean of 15.5%.

Over the past five years, ROE is slightly better than peer and industry averages in ranging from 22.9% (’18) to 35.6% (’19) with a mean of 29.9%. Debt-to-Capital is slightly lower than peer and industry averages in declining from 152% (’15) to 19.5% (’22) with a last-5-year mean of 30.6%.

Interest Coverage is 62.1 and Quick Ratio is 0.79. M* rates the company “Standard” for Capital Allocation while Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.3% YOY and 0% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 10.5% growth and 5.1% contraction for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 10.6% growth and 7.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 10.5% YOY and 2.4% growth per year for ’23 and ’22-’24, respectively (7).
• M* gives 2-year annualized ACE of 9.7% along with projecting 8.0% growth for the next five years in an analyst note.

I am forecasting less than both long-term estimates at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 7.7% YOY growth and 3.0% contraction per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects annualized contraction of 2.1% and 0.5% for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects contraction of 12.7% YOY and 3.6% per year for ’24 and ’23-’25, respectively [4, 4, and 1 analyst(s) for ’23, ’24, and ’25].
• YF projects YOY 7.6% growth and 10.9% contraction for ’23 and ’24, respectively (6), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 7.8% growth and 12.4% contraction for ’23 and ’24, respectively (4).
• Value Line projects 6.6% annualized growth from ’22-’27.
• CFRA projects growth of 13.4% YOY and 0.5% per year for ’23 and ’22-’24, respectively (8).
• M* projects long-term annualized growth of 9.7%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 9.9%) at 5.0% per year. I am using ’22 EPS of $7.51/share as the initial value rather than ’23 Q3 EPS of $8.23 (annualized).

My Forecast High P/E is 13.0. Excluding 2018 upside outlier of 34.2, high P/E has fallen from 26.0 in ’15 to 11.5 in ’22 with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 13.4. I am forecasting below the latter (only ’22 is lower).

My Forecast Low P/E is 5.0. Since ’15, low P/E has generally trended down from 17.4 in ’15 to 6.4 in ’22 with a last-5-year mean of 10.0. I am projecting below the entire range.

My Low Stock Price Forecast (LSPF) of $37.50 is the default based on $7.51/share initial value. This is 34.9% less than the previous close and 19.7% less than the 52-week low.

These inputs land MBUU in the BUY zone with a U/D ratio of 3.3. Total Annualized Return (TAR) is 16.7%.

PAR (using Forecast Average—not High—P/E) is 8.4%, which is a bit less than I prefer 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 247 studies done in the past 90 days (59 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 8.4%, 14.4, and 7.3. I am lower across the board. Value Line projects a future average annual P/E of 10.0, which is lower than MS (10.9) and higher than me (9.0).

MS high/low EPS is $12.09/$7.79 vs. my $9.58/$7.51 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $77.80 implies a Forecast Low P/E of 5.6 vs. the above-stated 7.3. MS LSPF is 22.6% less than the default value of $7.79/share * 7.3 = $67.21, which results in more conservative zoning. MS LSPF remains 29.2% greater than mine.

MOS in the current study seems robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two metrics I have been monitoring. PEG is 1.3 while Relative Value is 0.52 per M*. The latter suggests the stock to be significantly undervalued.

According to Kim Butcher’s “quick and dirty DCF,” the stock should be priced at 8 * [$12.00 – ($0.00 + $2.60)] = $75.20 (i.e. stock undervalued by 30.5%).

I would look to sail away with shares under $59.00.

PAYX Stock Study

I recently did a stock study on Paychex Inc. (PAYX) with a closing price of $109.33.

M* writes:

     > Paychex is a leading provider of payroll, human capital management,
     > and insurance solutions servicing small and midsize clients primarily
     > in the United States. The company, established in 1979, services
     > over 730,000 clients and pays over 1 in 12 U.S. private-sector workers.
     > Alongside its traditional payroll services, Paychex offers HCM solutions
     > such as benefits administration and time and attendance software, as
     > well as human resources outsourcing and insurance agency services.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 7.7% and 10.0%. Lines are mostly up, straight, and parallel except for the slightest of EPS dips in ’20 (by $0.01/share). PTPM far outpaces peer and industry averages while fighting off a 4-year decline to retake 2012 levels with a last-5-year mean of 37.0%.

Also over the past decade, ROE has been higher than peer and industry averages while increasing from 35.5% in ’12 to 42.1% in ’21 (FY ends May 31) with a last-5-year mean of 40.6%. Debt-to-Capital has been less than peer and industry averages despite increasing from 0% in ’12-’17 to 22.2% in ’21 with a last-5-year mean of 18.6%. Interest Coverage is 55.2 and Quick Ratio is 0.5. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 6.0% YOY and 5.8% per year for ’23 and ’22-’24 (based on 17 analysts).
• YF projects YOY 8.4% and 6.2% for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 6.4% and 6.5% for ’23 and ’24, respectively (6).
• Value Line projects 8.1% annualized growth from ’22-’27.
• CFRA projects 6.6% YOY and 6.4% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 7.1%/year along with projecting 5-year annualized growth of 6.0% in its analyst note.

I am forecasting at the bottom of the range: 6.0%.

With regard to EPS growth:

• CNN Business projects 9.1% YOY and 8.0% per year for ’23 and ’22-’24, respectively (based on 17 analysts), along with 5-year annualized growth of 10.5%.
• MarketWatch projects 7.9% and 7.8% per year for ’23-’25 and ’23-’26, respectfully (21 analysts).
• Nasdaq.com projects 6.2% YOY for ’25 (4).
• Seeking Alpha projects 4-year annualized growth of 8.8%.
• YF projects YOY 13.5% and 7.2% for ’23 and ’24, respectively (20), along with 5-year annualized growth of 9.2%.
• Zacks projects YOY 8.4% and 7.1% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 7.5%.
• Value Line projects 8.6% annualized growth from ’22-’27.
• CFRA projects 9.8% YOY and 7.6% for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 7.0%.
• M* projects long-term growth of 9.0%.

I am forecasting just below the long-term-estimate range (mean of six: 8.9%) at 7.0%. I am using ’22 EPS of $3.94/share as the initial value rather than ’23 Q3 EPS of $4.15 (annualized).

My Forecast High P/E is 25.0. Over the past decade, high P/E has increased from 24.8 in ’12 to 37.0 in ’21 with a last-5-year mean of 31.9. The last-5-year-mean average P/E is 26.7. I am forecasting toward the bottom of the range (only ’12 is lower).

My Forecast Low P/E is 21.0. Over the past decade, low P/E has ranged from 15.7 in ’19 to 26.0 in ’21 with a last-5-year mean of 21.5. 15.7 in ’19 looks like it may be a downside outlier. Excluding that, the last-5-year mean is 22.9. Including that, the last-10-year median is 21.2. I am forecasting in the lower part of the range.

My Low Stock Price Forecast (LSPF) is the default value of $82.70 based on $3.94/share initial value. This is 24.4% less than the previous closing price, 20.6% less than the 52-week low, and 17.2% less than the 2021 low.

Over the past decade, Payout Ratio has ranged from 41.7% in ’12 to 83.2% in ’20 with a last-5-year mean of 79.4%. I am forecasting conservatively at 70.0% (only ’12 is lower).

These inputs land PAYX in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 7.1%.

PAR (using Forecast Average—not High—P/E) is 5.6%, which is less than I seek for a medium-size stock. 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 252 studies over the past 90 days (74 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.0%, 8.0%, 29.4, 21.1, and 79.4%, respectively. I am lower across the board. Value Line projects an average annual P/E of 26.0, which is higher than MS (25.3) and higher than mine (23.0).

MS high and low EPS are $5.95/share and $3.90/share vs. my $5.39 and $3.94. My high EPS is lower due to a lower forecast growth rate. MOS seems healthy in the current study.

MS LSPF of $82.60 implies a Forecast Low P/E of 21.2, which is consistent with the above-stated 21.1. This is 0.1% less than mine: almost identical. I think this is quite adequate since the stock is currently trading so close to the 52-week low.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 3.2 (upper limit generally regarded to be 1.5). Relative Value (M* data) is 0.99.

Based on Kim Butcher’s “quick and dirty DCF” method, the stock should be valued at 21 * (6.65 – [4.64 + 0.55)] = $30.66 (i.e. stock overvalued by 257%). Something seems invalid here, but I’m new to this metric and need to see how it holds up over a larger sample size before drawing any conclusions.

I would look to re-evaluate this stock under $99/share. That is, once in the BUY zone I would update the numbers and invest if the projected return is acceptable.

PRI Stock Study (6-27-23)

I recently did a stock study on Primerica Inc. (PRI) with a closing price of $189.37.

CFRA writes:

     > Primerica, Inc., together with its subsidiaries, provides financial
     > products to middle-income households in the United States and
     > Canada. The company operates in four segments: Term Life
     > Insurance; Investment and Savings Products; Senior Health; and
     > Other Distributed Products. The Term Life Insurance segment
     > Corporate and underwrites individual term life insurance products.
     > The Investment and Savings Products segment provides mutual funds
     > and various retirement plans, managed investments, variable and
     > fixed annuities, and fixed indexed annuities. The Senior Health
     > segment offers segregated funds; and medicare advantage and
     > supplement products. The Corporate and Other Distributed Products
     > segment provides mortgage loans; prepaid legal services that assist
     > subscribers with legal matters, such as drafting wills, living wills
     > and powers of attorney, trial defense, and motor vehicle-related
     > matters; ID theft defense services; auto and homeowners’ insurance;
     > home automation solutions; and insurance products, including
     > supplemental health and accidental death. It distributes and sells
     > licensed sales representatives.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.6% and 16.4%, respectively. Lines are generally up, straight, and parallel with EPS dips in ’18 and ’21. PTPM leads peer and industry averages despite trending lower [the last few years] going from 19.8% in ’13 to 18.2% in ’22 with a last-5-year mean of 21.0%.

Also over the past decade, ROE leads peer and industry averages while trending up from 13.0% in ’13 to 22.1% in ’22 with a last-5-year mean of 21.1%. Debt-to-Capital over the decade has been higher than peer and industry averages while trending up from 23.5% in ’13 to 54.8% in ’22 with a last-5-year mean of 50.1%. Interest Coverage is 19.9, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.4% YOY and 5.4% per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• YF projects YOY 4.6% and 5.2% for ’23 and ’24, respectively (4 analysts).
• Zacks projects YOY 4.5% and 5.3% for ’23 and ’24, respectively (5).
• Value Line projects 8.0% annualized growth from ’22-’27.
• CFRA gives ACE of 4.8% YOY and 5.3% per year for ’23 and ’22-’24, respectively (5).
• M* offers a 2-year ACE of 6.6% annualized growth.

I am discounting the one long-term estimate by 37.5% and forecasting 5.0% per year.

With regard to EPS growth:

• CNN Business projects 34.4% YOY and 22.5% per year for ’23 and ’22-’24, respectively (based on 5 analysts), along with 5-year annualized growth of 14.0%.
• MarketWatch projects annualized growth of 25.5% and 20.3% for ’22-’24 and ’22-’25, respectively (6 analysts).
• Nasdaq.com projects 11.3% and 11.0% for ’23-’25 and ’23-’26 [5, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 34.4% and 11.6% for ’23 and ’24 (5), along with 10.5% annualized growth for the next five years.
• Zacks projects YOY 34.0% and 11.5% for ’23 and ’24, respectively (5).
• Value Line projects 14.2% annualized growth from ’22-’27.
• CFRA projects 57.9% YOY and 32.8% per year for ’23 and ’22-’24, respectively (6).

These near-term estimates are unusually high, which makes me wonder if the company will be completing an acquisition. With EPS growth of only 0.9% over the last two years, though, a spike in ’23 will merely get closer to the historical trendline.

I am forecasting below the long-term estimate range (mean of three: 12.9%) at 8.0%. I will use ’22 EPS of $9.74/share rather than ’23 Q1 $11.40 (annualized) as the initial value.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 14.0 in ’17 to 19.1 in ’21 with a last-5-year mean of 16.8. The last-5-year-mean average P/E is 13.8. I am forecasting toward the lower end of the range (10-year median is 16.0). I typically lean toward a more conservative forecast, but I can’t go much lower here without the study ending up INVALID.

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 6.4 in ’20 to 13.7 in ’21 with a last-5-year mean of 10.9. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.90 based on $9.74/share initial value. This is 58.9% less than the previous closing price and 29.3% less than the 2022 low.

Over the past decade, Payout Ratio has ranged from 10.3% in ’17 to 22.6% in ’22 with a last-5-year mean of 17.8%. I am forecasting just below the range at 10.0%.

These inputs land PRI in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 3.3%.

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

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 8 studies over the past 90 days (my study and 3 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 8.1%, 11.0%, 15.9, 10.4, and 15.0%, respectively. I am lower across the board. Value Line projects an average annual P/E of 12.5, which is lower than MS (13.2) and higher than mine (11.5).

MS high (low) EPS is $18.54/share ($9.76/share) vs. my $14.31 ($9.74). My high EPS is lower due to a lower growth rate.

MS LSPF of $107.00 implies a Forecast Low P/E of 11.0 (vs. the above-stated 10.4). This is 5.4% greater than the default value $9.76 * 10.4 = $101.50, which results in more aggressive zoning. My LSPF is 27.2% lower than MS.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Based on my forecast EPS growth rate, PEG is 2.10 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 1.20. The stock is overvalued according to both metrics.

While MS provides too small a sample to draw any valid conclusions, MOS appears healthy in this study. The stock is beyond overcooked at the moment, though, after rallying ~60% in the last 12 months. I would look to re-evaluate under $112/share.

DG Stock Study (7-19-23)

I recently did a stock study on Dollar General Corp. (DG) with a closing price of $164.49. The original study is here.

M* writes:

     > A leading American discount retailer, Dollar General operates
     > over 19,000 stores in 47 states, selling branded and private-
     > label products across a wide variety of categories. In fiscal
     > 2022, 80% of net sales came from consumables (including paper
     > and cleaning products, packaged and perishable food, tobacco,
     > and health and beauty items), 11% from seasonal merchandise
     > (such as toys, greeting cards, decorations, and gardening
     > supplies), 6% from home products (for example, kitchen
     > supplies, small appliances, and cookware), and 3% from
     > apparel. Stores average roughly 7,500 square feet, and about
     > 75% of Dollar General locations are in towns of 20,000 or
     > fewer people. The firm emphasizes value, with most of its
     > items sold at everyday low prices of $5 or less.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 9.1% and 16.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’21. PTPM leads peer and industry averages while decreasing from 9.3% in ’13 to 8.2% in ’22 with a last-5-year mean of 8.6%.

Also over the past decade, ROE leads peer and industry averages while trending higher from 19.1% in ’13 to 39.2% in ’22 with a last-5-year mean of 32.7%. Debt-to-Capital is lower than peer and industry averages until ’19 when it spikes higher and continues to increase. The last-5-year mean is somewhat uncomfortable at 61.4%.

Despite a Quick Ratio of only 0.06, Current Ratio is 1.32 and Interest Coverage is 13.1. Value Line gives an A rating for Financial Strength while M* gives a Standard rating for Capital Allocation.

With regard to sales growth:

• CNN Business projects 4.0% YOY and 5.4% per year for ’24 (FY ends Jan 31; I label by ending date) and ’23-’25, respectively (based on 25 analysts).
• YF projects YOY 4.0% and 6.6% for ’24 and ’25, respectively (26 analysts).
• Zacks projects YOY 3.9% and 6.6% for ’24 and ’25, respectively (22).
• Value Line projects 4.0% annualized growth from ’23-’28.
• CFRA projects 4.6% YOY and 5.9% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 6.5%.

I am forecasting at the bottom of the range: 4.0%.

With regard to EPS growth:

• CNN Business reports ACE of 5.7% YOY contraction and 1.3% growth per year for ’24 and ’23-’25, respectively (based on 25 analysts), along with 5-year annualized growth of 4.4%.
• MarketWatch projects annualized growth of 1.4% and 4.9% for ’23-’25 and ’23-’26, respectively (30 analysts).
• Nasdaq.com projects growth of 9.9% and 10.7% per year for ’24-’26 and ’24-’27, respectively (24, 16, and 5 analysts).
• Seeking Alpha projects 4-year annualized growth of 5.0%.
• YF projects YOY 5.7% contraction and 9.3% growth for ’24 and ’25 (29), along with 5.3% growth/year x5 years.
• Zacks projects YOY 6.1% contraction and 8.7% growth for ’24 and ’25 (22), along with 9.6% growth/year x5 years.
• Value Line projects 6.3% annualized growth from ’23-’28.
• CFRA projects 2.8% YOY contraction and 6.8% growth per year for ’24 and ’23-’25, respectively, along with a 3-year projected CAGR of 6.0%.
• M* projects long-term annualized growth of 10.6%.

I am forecasting below the long-term-estimate range (mean of six: 6.9%) at 4.0% per year based on ’23 EPS of $10.68/share.

My Forecast High P/E is 19.0. Over the past decade, high P/E has increased from 19.9 to 24.6 with a last-5-year mean of 22.9. Last-5-year-mean average P/E is 19.1. I am forecasting near the bottom of the range (only 18.8 in ’17 is lower).

My Forecast Low P/E is 13.0. Over the past decade, low P/E has ranged from 11.7 (’17) to 17.2 (’22) with a last-5-year mean of 15.3. I am forecasting near the bottom of the range [only ’17 and ’20 (11.8) are lower].

My Low Stock Price Forecast (LSPF) of $182.20 is the default based on $10.68/share initial value. This is 22.1% less than the previous close and 15.3% less than the 52-week low.

Since a dividend was first issued in ’15, Payout Ratio has ranged from 13.6% in ’20 to 22.6% in ’16. I am forecasting below the range at 13.0%.

These inputs land DG in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) of 5.4% is too low for a large-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 248 studies done in the past 90 days (my study and 95 other 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 7.1%, 9.3%, 21.5, 14.5, and 17.9%. I am lower across the board. Value Line projects a future average annual P/E of 20.0, which is higher than MS (18.0) and mine (16.0).

MS high/low EPS is $16.71/$10.23 vs. my $12.99/$10.68 (per share). My high EPS is lower due to a lower growth rate and my overall EPS range is lower.

MS LSPF of $146.60 implies a Forecast Low P/E of 14.3, which is very close to the above-stated 14.5. MS LSPF is only 1.2% less than the default $10.23/share * 14.5 = $148.34, which results in more conservative zoning. MS LSPF remains 14.4% greater than mine.

MOS in the current study is robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG is 1.68 per Zacks using its 9.6% growth rate and much higher using my 4.0%. Relative Value is 0.79 (M*). These are suggestive of an overvalued and undervalued stock, respectively.

According to Kim Butcher’s “quick and dirty DCF,” fair value for the stock is 14.5 * [$19.00 – ($3.00 + $6.40)] = $232.00 (i.e. stock undervalued by 29.1%).

I would look to re-evaluate DG under $157/share.

TSM Stock Study (6-23-23)

I recently did a stock study on Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) with a closing price of $103.13. The original study is here.

M* writes:

     > Taiwan Semiconductor Manufacturing Co. is the world’s largest
     > dedicated chip foundry, with over 57% market share in 2021 per
     > Gartner. 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%. Lines are up, straight, and parallel except for an EPS dip in ’19. PTPM is greater than peer and industry averages and trending higher in recent years, increasing from 36.2% in ’13 to 50.5% in ’22 with a last-5-year mean of 42.2%.

Also over the past decade, ROE has been greater than peer and industry averages from ’13-’17 before falling behind in ’18 despite trending higher in recent years. The last-5-year mean is 27.7%. Debt-to-Capital has been lower than peer and industry averages, trending down from 21.4% in ’13 to 9.4% before reversing higher to 23.2% in ’22. The last-5-year mean is 17.3%. Interest Coverage is over 93 and Quick Ratio is 2.0. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A++ rating for Financial Strength.

M* also assigns the company a Wide (stable) Economic Moat.

With regard to sales growth:

• CNN Business projects 4.7% YOY contraction and 7.5% growth per year for ’23 and ’22-’24 (based on 7 analysts).
• YF projects YOY 6.3% contraction and 22.2% growth for ’23 and ’24, respectively (12 analysts).
• Zacks projects YOY 5.7% contraction and 14.6% growth for ’23 and ’24, respectively (1).
• Value Line projects 7.3% annualized growth from ’22-’27.
• CFRA projects 3.0% YOY contraction and 9.2% growth per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 5.5% annualized growth along with its estimate of 9.7% annualized for the next 5 years.

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

With regard to EPS growth:

• CNN Business projects contraction of 19.1% YOY and 0.7% per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized growth of 3.3%.
• MarketWatch projects annualized growth of 0.2% and 6.1% for ’22-’24 and ’22-’25, respectively (37 analysts).
• Nasdaq.com projects 17.7% YOY growth for ’24 (3).
• Seeking Alpha projects 4-year annualized growth of 5.4%.
• YF projects YOY 22.0% contraction and 24.7% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 21.5%.
• Zacks projects YOY 19.0% contraction and 17.7% growth for ’23 and ’24, respectively (3).
• Value Line projects 8.8% annualized growth from ’22-’27.
• CFRA projects 20.3% YOY contraction and 0.7% growth per year for ’23 and ’22-’24 along with a 3-year CAGR of 5.0%.
• M* projects long-term annualized growth of 4.8%.

Actual EPS spiked over 60% YOY in ’22.

Estimates have decreased since my study three months ago. I am forecasting toward the bottom of the long-term-estimate range (mean of five: 8.8%; this drops to 5.6% with the YF estimate excluded) at 4.0%. My initial value is ’22 EPS of $6.43/share rather than ’23 Q1 EPS of $6.47 (annualized).

My Forecast High P/E is 14.0. Over the past decade, high P/E has ranged from 14.1 (’15) to 34.8 (’21) with a last-5-year mean of 27.4. The last-5-year-mean average P/E is 20.3. I am forecasting below the entire range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E has ranged from 9.0 (’22) to 15.5 (19) with a last-5-year mean of 13.2 (26.3 in ’21 excluded). I am forecasting near the low end of the range (only 9.5 in ’15 and the ’22 value are lower).

My Low Stock Price Forecast (LSPF) is the default value of $64.30 based on $6.43/share initial value. This is 37.7% less than the previous closing price but still 8.2% above the 52-week low [tough to buy when near 52-week high!].

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

These inputs land TSM in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 3.3%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 0.6%. 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 394 studies over the past 90 days (my study and 113 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 9.6%, 8.5%, 22.5, 13.6, and 55.0%, respectively. I am lower across the board. Value Line projects an average annual P/E of 18.0, which is lower than MS (19.1) and much higher than mine (12.0).

MS high (low) EPS is $9.45/share ($6.08/share) vs. my $7.88 ($6.47). My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $65.60 implies a Forecast Low P/E of 10.8 (vs. the above-stated 13.6). This is 20.7% less than the default value $6.08 * 13.6 = $82.69, which represents more conservative zoning. It remains 2.0% higher than mine, however.

MOS seems quite robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. I calculate PEG ~4.0 (upper limit generally regarded to be 1.5) while Relative Value (M* data) is 0.78. In this case, the latter seems attractive whereas the former is not.

I would look to re-evaluate TSM under $76/share.

LFUS Stock Study (6-22-23)

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $278.96. The original study is here.

M* writes:

     > Littelfuse is a primary provider of circuit protection products
     > (such as fuses and relays) into the transportation, industrial,
     > telecommunications, and consumer electronics end markets. The
     > firm is also increasing its power semiconductor business, where
     > it predominantly serves industrial end markets and is breaking
     > into electric vehicle charging infrastructure.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 13.6% and 13.8%, respectively. Lines are generally up and parallel with sales declines in ’19 and ’20 along with EPS declines in ’15, ’19, and ’20. PTPM has been cyclical (recently trending up) albeit ahead of peer and industry averages with a last-5-year mean of 13.6%.

Also over the past decade, ROE has been cyclical (recently trending up) and above peer and industry averages with a last-5-year mean of 12.3%. Debt-to-Capital over the decade has generally been lower than the industry but higher than peer averages with a last-5-year mean of 30.6% (recently trending up). Value Line rates the company B++ for Financial Strength. M* gives a Standard rating for Capital Allocation, writing that the company has a sound balance sheet and low debt. Quick Ratio is 1.5, and Interest Coverage is 14.2.

With regard to sales growth:

• CNN Business projects flat YOY and 2.0% growth per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• YF projects YOY 1.3% contraction and 5.5% growth for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 1.9% contraction and 5.6% growth for ’23 and ’24, respectively (3).
• Value Line projects 4.1% annualized growth from ’22-’27.
• CFRA gives ACE of 0.7% YOY contraction and 1.3% growth per year for ’23 and ’22-’24, respectively (6).
• M* offers a 2-year ACE of 4.0% annualized growth.

I am discounting the one long-term estimate by 25.0% and forecasting 3.0% per year.

With regard to EPS growth:

• CNN Business projects contraction of 20.3% YOY and 6.4% per year for ’23 and ’22-’24, respectively (based on 5 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects contraction of 20.0% YOY and 6.2% per year for ’23 and ’22-’24, respectively (8 analysts).
• Nasdaq.com projects 9.1% YOY growth for ’24 (3).
• Seeking Alpha projects 4-year annualized growth of 12.0%.
• YF projects YOY 18.4% contraction and 8.1% growth for ’23 and ’24, respectively (7), along with 10.3% annualized growth for the next five years.
• Zacks projects YOY 19.6% contraction and 9.1% growth for ’23 and ’24, respectively (3), along with 12.0% annualized growth for the next five years.
• Value Line projects 0.6% annualized growth from ’22-’27.
• CFRA projects contraction of 7.9% YOY and 0.2% per year for ’23 and ’22-’24, respectively (7).
• M* provides long-term ACE of 8.3% annualized growth.

Value Line is a downside outlier of six long-term EPS projections. Its left-margin table says 14.5% annualized from ’20-’22 to ’26-’28, but I can’t get this from numbers in the statistical array. Per the latter, 4.7% annualized growth is projected from 2021 through ’27 (my interpretation of ’26-’28). I will use the 4.7% in place of 0.6% and forecast conservatively toward the lower end of the range at 4.0% (mean of long-term estimates using the 0.6% for Value Line is 9.2%).

I do wonder about data duplication. I’ve seen this in the past with other companies being covered by few analysts. Three of the six long-term estimates here are exactly 12.0% (not 11.8%, 12.1%, etc.) despite coming from three different data sources; could those be the same few analysts?

I am using 2021 Q1 EPS of $13.78/share (annualized) as the initial value rather than ’22 EPS of $14.94 to be conservative

My Forecast High P/E is 21.0. Over the past decade, high P/E goes from 24.1 in ’13 to 48.5 in ’20 before heading down to 21.9 in ’22. The last-5-year mean high P/E is 34.6 and the last-5-year-mean average P/E is 27.7. I am forecasting below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E goes from 15.3 in ’13 to 28.2 in ’17 before heading down to 12.9 in ’22. The last-5-year mean is 20.7. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $179.10 based on $13.78/share EPS. This is 35.8% less than the previous closing price and 6.5% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 15.1% in ’22 to 36.3% in ’20 with a last-5-year average of 25.2%. I am forecasting just below the range at 15.0%.

These inputs land LFUS in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 5.5%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 1.3%. 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 124 studies over the past 90 days (my study and 58 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 8.4%, 8.4%, 25.8, 18.2, and 26.5%, respectively. I am lower across the board. Value Line projects an average annual P/E of 24.0, which is higher than MS (22.0) and much higher than mine (17.0).

MS high and low EPS are $21.20/share and $13.75/share versus my $16.77 and $13.78. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $186.80 implies a Forecast Low P/E of 13.6 (vs. the above-stated 18.2). This is 25.4% less than the default value $13.75 * 18.2 = $250.25, which results in more conservative zoning. It remains 4.3% higher than mine, however. MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.71 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 0.58. In this case, the latter looks attractive whereas the former does not.

I would look to re-evaluate LFUS under $222/share.

LRN Stock Study (7-11-23)

I recently did a stock study on Stride Inc. (LRN) with a closing price of $36.86.

M* writes:

     > Stride Inc is an American online educational company. The company
     > offers alternative programs to traditional on-campus schooling.
     > It also operates state-funded virtual charter schools around the
     > United States. The educational programs for K-12 students are
     > usually monitored by parents and provide virtual classroom
     > environments where teachers meet with students online, by phone,
     > or in-person. The company’s contractual agreements with various
     > school districts to offer its curriculum programs provide a
     > majority of the company’s revenue. The company lines of business
     > are Managed Public School Programs, Institutional, and Private
     > Pay Schools and Other.

Over the past decade, this medium-size company has grown sales and EPS at 6.7% and 11.9% per year [excluding fractional EPS years of ’14, ’15, ’16, and ’17 that would otherwise inflate the latter to 21.3%], respectively. Lines are somewhat up and parallel, but visual inspection is mediocre. Sales dips in ’16, and 2015 sales is not exceeded until ’19. EPS dips in ’14, ’15, ’16, ’17, and ’20; 2013 EPS is not exceeded until ’19. I would therefore consider this for a smaller [speculative] position size.

Over the past decade, PTPM trails industry and peer averages while tracing a U-pattern from 5.5% in ’13 to 0.6% in ’17 to 8.7% in ’22 with a last-5-year mean of 5.2%. ROE slightly trails the industry while roughly matching peer averages by going from 5.6% in ’13 to 0.1% in ’17 to 13.8% in ’22 with a last-5-year mean of 7.4%. Debt-to-Capital is lower than peer and industry averages going from 6.3% in ’13 to 3.7% in ’19 before increasing to 41.0% in ’22 for a last-5-year mean of 22.3%.

Quick Ratio is 3.0, Interest Coverage is 156,628 / 8,277 = 18.9, and Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 5.9% YOY and 5.7% per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• YF projects YOY 7.7% and 7.1% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 7.8% and 6.4% for ’23 and ’24, respectively (3).
• Value Line projects 6.7% annualized growth from ’22-’27.
• CFRA projects 7.7% YOY and 7.4% per year for ’23 and ’22-’24, respectively (5).
• M* gives a 2-year ACE of 7.0% annualized growth.

I am forecasting conservatively below the range at 5.0%.

With regard to EPS growth:

• CNN Business projects 12.3% YOY and 10.7% per year for ’23 and ’22-’24, respectively (based on 4 analysts), along with 5-year annualized growth of 20.0%.
• MarketWatch projects 10.5% and 14.0% per year for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 9.6% YOY and 14.4% per year for ’24 and ’23-’25 [3, 3, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 20.0%.
• YF projects YOY 12.3% and 9.2% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 20.0%.
• Zacks projects YOY 11.9% and 9.6% for ’23 and ’24, respectively (3), along with 5-year annualized growth of 20.0%.
• Value Line projects 7.7% annualized growth from ’22-’27.
• CFRA projects 18.7% YOY and 13.6% per year for ’23 and ’22-’24, respectively (4).
• M* projects long-term growth of 20.0% per year.

Five of six long-term estimates are exactly the same (20.0%), which makes me suspicious of data duplication. The mean [of six] is 18.0%. Assuming two different analyst (combinations) are responsible for 20.0% across five data sources, the mean [of three] would be 15.9%. I will forecast conservatively at 10.0% and use ’22 EPS of $2.52/share as the initial value rather than ’23 Q3 $2.61 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E has trended down from 42.9 in ’13 to 16.9 in ’22 with a last-5-year mean of 33.8. The last-5-year-mean average P/E is 25.3. I am forecasting near the bottom of the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E has trended down from 22.0 in ’13 to 10.2 in ’22 with a last-5-year mean of 16.7. The last-10-year median is 23.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default $25.20 based on $2.52/share initial value. This is 31.6% less than the previous close, 17.9% less than the 52-week low, and 1.6% less than the 2022 low.

These inputs land LRN in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) of 8.3% 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 only 22 studies over the past 90 days (my study and 7 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.0%, 9.5%, 25.0, and 15.8, respectively. I am lower on all except EPS growth (10.0%), but I can’t read too much into such a small sample size. Value Line projects an average annual P/E of 20.0, which is lower than MS (20.4) and much higher than mine (13.5).

MS high/low EPS is $4.06/$2.46 vs. my $4.06/$2.52 (per share). This may be the closest agreement I have seen thus far.

MS LSPF of $29.40 implies a Forecast Low P/E of 12.0 vs. the above-stated 15.8. MS LSPF is 24.4% lower than the default value of $2.46/share * 15.8 = $38.87, which results in more conservative zoning. MS LSPF remains 16.7% greater than mine.

Despite the small MS sample size, MOS in this study seems to be at least moderate if not robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Both are 0.6 (per Zacks and M* data, respectively), which suggests the stock to be undervalued.

I am also familiarizing myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock price is undervalued by 32.0%: 9.5 * [$6.90 – ($0.00 + $0.25)] = $63.18.

I would look to purchase shares under $35 (a few percentage points lower to boost projected return above my threshold).

OLED Stock Study (6-21-23)

I recently did a stock study on Universal Display Corp. (OLED) with a closing price of $141.28. The original study is here.

M* writes:

     > Universal Display Corp researches, develops and manufactures
     > organic light-emitting diode, or OLED, technologies for use
     > in displays for mobile phones, tablets, televisions, wearables,
     > personal computers, automotive interiors, and the solid-state
     > lighting market. OLED technologies are an alternative to a
     > light-emitting diode, or LED, technologies, in the solid-state
     > lighting market, and liquid crystal displays in the flat-panel-
     > display market. A large majority of the firm’s revenue is
     > generated in South Korea, with the rest coming from Japan,
     > China, the United States, and other countries across the world.

Over the past decade, this small-size company has grown sales at an annualized rate of 17.2%. EPS has grown 15.1% per year excluding ’14 and ’15 (including these years of fractional EPS results in 22.1% annualized rate). Lines are mostly up, straight, and parallel with sales declines in ’18 and EPS declines in [’14, ’15, and] ’18 and ’20. PTPM has led peer and industry averages while generally trending higher from 26.6% to 43.5% with a last-5-year mean of 38.1%.

Since ’15, ROE leads peer and industry averages while trending higher from 3.2% to 17.3% in ’22 with a last-5-year mean of 15.3%. Debt-to-Capital averages 0.9% over the last five years as the company has zero long-term debt: much lower than peer and industry averages. Quick Ratio is 6.43, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

• CNN Business projects 6.8% YOY contraction and 6.0% growth per year for ’23 and ’22-’24 (based on 10 analysts).
• YF projects YOY 6.8% contraction and 20.6% growth for ’23 and ’24, respectively (10 analysts).
• Zacks projects YOY 7.3% contraction and 15.4% growth for ’23 and ’24, respectively (5).
• Value Line projects 13.3% annualized growth from ’22-’27.
• CFRA projects 3.0% YOY contraction and 4.1% growth per year for ’23 and ’22-’24, respectively.
• M* projects 5.0% growth per year for the next two years.

Given the projected contraction in ’23, I am forecasting to the low side at 6.0%.

With regard to EPS growth:

• CNN Business projects 15.0% YOY contraction and 5.0% growth per year for ’23 and ’22-’24, respectively (based on 10 analysts) along with 5-year annualized growth of 13.3%.
• MarketWatch projects annualized growth of 10.4% and 14.9% for ’22-’24 and ’22-’25, respectively (11 analysts).
• Nasdaq.com projects growth of 21.6% YOY and 21.8% per year for ’24 and ’23-’25 (5, 5, and 2 for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 14.9%.
• YF projects YOY 15.2% contraction and 30.0% growth for ’23 and ’24, respectively (10), along with 5-year annualized growth of 12.2%.
• Zacks projects YOY 12.5% contraction and 21.6% growth for ’23 and ’24, respectively (5), along with 5-year annualized growth of 15.7%.
• Value Line projects annualized growth of 8.1% from ’22-’27.
• CFRA projects 12.7% YOY contraction and 6.3% growth per year for ’23 and ’22-’24, along with 3-year CAGR of 15.0%.
• M* projects 30.0% long-term annualized growth.

I am forecasting just below the long-term-estimate range (mean of six: 15.7%) at 8.0%. Also to be conservative, I am using 2023 Q1 EPS of $4.18/share (annualized) rather than ’22 EPS of $4.40.

My Forecast High P/E is 35.0. Over the past decade, high P/E has ranged from 25.0 in ’13 to 88.4 in ’17 (excluding triple-digit outliers in ’15 and ’18) with a last-5-year mean of 68.9. The last-5-year-mean average P/E is 49.6. I am forecasting toward the bottom of the range (only ’13 is lower).

My Forecast Low P/E is 20.0. Over the past decade, low P/E has ranged from 15.6 in ’13 to 39.6 in ’16 (excluding upside outliers 82.6 in ’15 and 63.5 in ’18) with a last-5-year mean of 30.2. I am forecasting toward the bottom of the range (only the ’13 value is lower).

My Low Stock Price Forecast (LSPF) is the default value of $83.60 (based on $4.18/share initial value). This is 40.8% less than the previous close and 6.5% less than the 52-week low.

The stock has paid a dividend since 2017. Payout Ratio has increased from 5.5% that year to 27.3% in ’22 with a last-5-year mean of 20.5%. I am forecasting conservatively at 10.0% (only ’17 is less).

These inputs land OLED in the HOLD zone with a U/D ratio of 1.3. Total Annualized Return (TAR) is 9.0%.

PAR (using Forecast Average–not High–P/E) is less than I seek at 4.0%. 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 211 studies over the past 90 days (my study and 62 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 13.0%, 12.1%, 40.0, 25.0, and 16.1%, respectively. I am equal on Forecast Low P/E and lower on the other four inputs. Value Line projects an average annual P/E of 30.0, which is lower than MS (32.5) and higher than mine (27.5).

MS high (low) EPS is $7.70/share ($4.06/share) versus my $6.14 ($4.18). My high EPS is lower due to a lower growth rate.

MS LSPF of $89.40 implies a Forecast Low P/E of 22.0 (vs. the above-stated 25.0). This is 11.9% less than the default value $4.06 * 25.0 = $101.50, which results in more conservative zoning. It remains 6.9% higher than mine, however.

PEG ratio is another value check I have recently begun to monitor. Zacks reports PEG of 2.3 where 1.50 is generally regarded as the upper limit. Perhaps I should also monitor Relative Value = current P/E / 5-year-mean average P/E = 0.68. In this case, the latter looks attractive whereas the former does not.

MOS seems robust in this study.

I would look to re-evaluate OLED under $116/share.

FELE Stock Study (6-18-23)

I recently did a stock study on Franklin Electric Company, Inc. (FELE) with a closing price of $100.53.

M* writes:

     > Franklin Electric Co Inc designs, manufactures, and distributes
     > water and fuel pumping systems, composed of submersible motors,
     > pumps, electronic controls, water treatment systems, and
     > related parts and equipment. It has three segments; The Water
     > Systems segment designs, manufactures and sells motors, pumps,
     > drives, electronic controls, monitoring devices, and related
     > parts and equipment for use in groundwater, water transfer, and
     > wastewater, The Fueling Systems segment designs, manufactures
     > and sells pumps, pipe, sumps, fittings, vapor recovery
     > components, electronic controls, monitoring devices, and
     > related parts and equipment for use in fueling system
     > applications and the Distribution segment sells and provides
     > presale support and specifications to the installing contractors.

This medium-size company has grown sales and EPS at annualized rates of 7.9% and 10.4% over the past decade. Lines are mostly up, straight, and parallel except for sales dips in ’15 and ’20 along with EPS dips in ’14 and ’19 (flat in ’17).

Over the past decade, PTPM is above industry but below peer averages while ranging from 8.6% in ’14 to 11.6% in ’13 with a last-5-year mean of 10.2%. ROE is below peer averages but slightly better than the industry while increasing from 14.0% in ’13 to 17.9% in ’22 with a last-5-year mean of 14.5%.

Also over the past decade, Debt-to-Capital has been below peer and industry averages with a last-5-year mean of 18.0%. Quick Ratio is 0.67 ($600M inventory) and Interest Coverage is 19.6. Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 10.0% YOY and 7.2% per year for ’23 and ’22-’24, respectively (based on 3 analysts).
• YF projects YOY 6.8% and 3.1% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 6.9% and 4.5% for ’23 and ’24, respectively (2).
• Value Line projects 5.5% annualized growth from ’22-’27.
• CFRA projects 6.8% YOY and 5.1% per year for ’23 and ’22-’24, respectively (5).
• M* provides a 2-year ACE of 5.7% per year.

I am forecasting below the range at 5.0%.

With regard to EPS growth:

• CNN Business reports ACE of 9.3% YOY and 7.4% per year for ’23 and ’22-’24, respectively (based on 3 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects 6.8% YOY and 6.2% per year for ’23 and ’22-’24, respectively (5 analysts).
• Nasdaq.com projects 6.4% YOY for ’24 (3).
• Seeking Alpha projects 4-year annualized growth of 12.0%.
• YF projects YOY 9.3% and 5.5% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 13.4%.
• Zacks projects YOY 8.8% and 6.4% for ’23 and ’24, respectively (3), along with 5-year annualized growth of 12.0%.
• Value Line projects 7.3% annualized growth from ’22-’27.
• CFRA projects 9.8% YOY and 7.6% per year for ’23 and ’22-’24, respectively (3).
• M* projects long-term annualized growth of 12.0%.

I am forecasting below the long-term-estimate range (mean of six: 11.5%) at 7.0%. My initial value is ’22 EPS of $3.97 rather than Q1 ’23 $4.13/share (annualized).

My Forecast High P/E is 23.0. Over the past decade, high P/E has ranged from 23.1 in ’18 to 33.9 in ’20 with a last-5-year mean of 27.9. The last-5-year-mean average P/E is 23.5. I am forecasting below the range.

My Forecast Low P/E is 17.0. Over the past decade, low P/E has ranged from 14.4 in ’16 to 23.8 in ’14 with a last-5-year mean of 19.1. I am forecasting toward the bottom of the range [only ’16 and ’15 (15.1) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $70.20 (based on $3.97/share initial value). This is 30.2% less than the previous closing price and 2.6% above the 52-week low.

Over the past decade, Payout Ratio has ranged from 18.2% in ’13 to 29.0% in ’20 with a last-5-year mean of 23.9%. I am forecasting conservatively below the range at 18.0%.

These inputs land FELE in the HOLD zone with a U/D ratio of 0.8. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) is 3.0%, which is less than the current yield of 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 13 studies over the past 90 days (my study and 4 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 8.4%, 7.3%, 25.9, 18.7, and 23.9%, respectively. I am lower across the board. Value Line projects an average annual P/E of 25.0, which is higher than MS (22.3) and mine (20.0).

MS high and low EPS are $5.81/share and $3.98/share versus my $5.57 and $3.97. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $68.10 implies a low P/E of 17.1 (vs. the above-stated 18.7). This is 8.5% less than the $3.98 * 18.7 = $74.43 default value, which results in lower-risk zoning. MS LSPF is also 3.0% less than mine.

PEG ratio is another value check that I have recently begun to monitor. PEG is 1.92 per Zacks where 1.50 is generally regarded as the upper limit. Granted we are now in a bull market, but I remain uncertain how useful PEG will be.

Due to the low MS sample size, I don’t want to base much on that comparison alone. Because I also selected conservative inputs at every turn relative to ranges and analyst estimates, I feel MOS is robust in the current study.

With the stock up 13.7%, 22.0%, and 42.9% in the last 3, 6, and 12 months, respectively, I am not surprised to see it out of the BUY zone at this time. I would look to re-evaluate under $82/share.

GNRC Stock Study (6-12-23)

I recently did a stock study on Generac Holdings Inc. (GNRC) with a closing price of $117.66. The original study is here.

Value Line writes:

     > Generac Holdings Inc. designs and manufactures a wide range
     > of generators and other engine-powered products for the
     > residential, light commercial, industrial, and construction
     > markets. Its products are fueled by natural gas, liquid
     > propane, diesel, and Bi-Fuel. Acquired Ottomotores, 12/12;
     > Tower Light, 8/13; Country Home Prod., 8/15; and Pramac
     > Group, 3/16. Generac’s products are sold through indep.
     > dealers, retailers, wholesalers, and equipment rental cos.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 13.8% and 17.5%, respectively. Lines are mostly up, straight, and parallel except for sales/EPS declines in ’14 and ’15 and an EPS decline in ’22. PTPM has led peer and industry averages despite going from 18.8% in ’13, down, up, and back down to 11.1% in ’22 with a last-5-year mean of 15.5%.

Over the past decade, ROE also leads peer and industry averages. Excluding an upside outlier of 66.9% in ’13, ROE goes from 38.3% in ’14 down, up, and back down to 14.4% in ’22 [may prove to be a downside outlier] for a last-5-year mean of 26.1%. Debt-to-Capital has trended lower from 79.1% in ’13 to 43.6% in ’22 with a last-5-year mean of 45.4%. This is above peer and industry averages although it does cross below the latter in ’19. Interest Coverage is 6.6 and Quick Ratio is 0.69. M* rates the company Standard for Capital Allocation and Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects contraction of 10.9% YOY and 1.1% per year for ’23 and ’22-’24 (based on 20 analysts).
• YF projects YOY 9.6% contraction and 9.9% growth for ’23 and ’24, respectively (23 analysts).
• Zacks projects YOY 9.6% contraction and 8.4% growth for ’23 and ’24, respectively (10).
• Value Line projects 11.9% annualized growth from ’22-’27.
• CFRA projects 7.2% YOY contraction and 0.6% growth per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 0.7% annualized growth.

With sources projecting near-term contraction, I am halving the one long-term estimate to get my 6.0% forecast.

With regard to EPS growth:

• CNN Business projects contraction of 26.3% YOY and 1.0% per year for ’23 and ’22-’24, respectively (based on 20 analysts), along with 5-year annualized growth of 8.0%.
• MarketWatch projects contraction of 1.6% per year and growth of 3.0% per year for ’22-’24 and ’22-’25 (26 analysts).
• Nasdaq.com projects annualized growth of 30.4% and 22.3% for ’23-’25 and ’23-’26, respectively (13, 14, and 4 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 7.0%.
• YF projects YOY 27.3% contraction and 34.2% growth for ’23 and ’24, respectively (19), along with 5-year annualized contraction of 1.4%.
• Zacks projects YOY 28.6% contraction and 30.4% growth for ’23 and ’24, respectively (13), along with 5-year annualized growth of 10.0%.
• Value Line projects 27.1% annualized growth from ’22-’27.
• CFRA projects 26.7% YOY contraction and 2.0% growth per year for ’23 and ’22-’24, along with 3-year CAGR of 10.0%.
• M* projects long-term annualized growth of 7.3%.

I’m as perplexed by the lowest long-term estimate as I am the highest. Excluding both, the 4-estimate mean is 8.1% with the lowest at 7.0%. I am forecasting 6.0%—just below the latter—and using ’22 EPS of $5.42/share as an initial value rather than Q1 ’23 $3.92 (annualized) since most analysts project contraction limited to near-term.

My Forecast High P/E is 25.0. Over the last decade, high P/E has ranged from 17.1 in ’18 to 65.3 in ’22 with a last-5-year mean of 43.0. The last-5-year-mean average P/E is 29.6. I am forecasting below the latter.

My Forecast Low P/E is 15.0. Over the last decade, low P/E has ranged from 12.0 in ’19 to 26.8 in ’21 with a last-5-year mean of 16.1. I am forecasting below the 10-year median of 15.5.

My Low Stock Price Forecast (LSPF) is the default of $81.30 based on ’22 EPS. This is 30.9% less than the previous closing price and 5.8% less than the 52-week low.

These inputs land GNRC in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.2%.

At 4.4%, PAR (using Forecast Average—not High—P/E) is too low 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 278 studies done in the past 90 days (my study along with 105 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.3%, 10.0%, 28.0, and 14.8. I am lower across the board. Value Line projects a future average annual P/E of 26.0, which is higher than MS (21.4) and mine (20.0). MOS seems to be robust.

With regard to other data, MS high and low EPS are $8.22/share and $5.14/share compared to my $7.25 and $5.42. My high EPS is lower due to a lower EPS growth rate. My low EPS is higher because 88 studies used $3.92 (Q1 ’23) as low EPS. MS has a LSPF of $75.90, which is 6.6% less than mine. This is consistent with the default value of $5.14 * 14.8 = $76.07.

GNRC is a BUY under $106/share.