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CVCO Stock Study (6-8-23)

Posted by on June 20, 2023 at 06:48 | Last modified: June 8, 2023 11:46

I recently did a stock study on Cavco Industries Inc. (CVCO) with a closing price of $288.54.

M* writes:

     > Cavco Industries Inc. designs and produces factory-built homes under
     > the Cavco Homes, Fleetwood Homes, and Palm Harbor Homes brands.
     > It also produces modular homes, park model homes, and vacation
     > cabins, as well as commercial structures, among others. The company
     > operates principally in two segments: Factory-built housing, which
     > includes wholesale and retail systems-built housing operations and
     > financial services, which includes manufactured housing consumer
     > finance and insurance. Cavco received most of its revenues from
     > the Factory-built housing segment.

Over the last decade, this medium-size company has grown sales and earnings at annualized rates of 13.4% and 34.9%, respectively. The latter includes a 158% YOY spike in ’21—much of which is due to acquisition of The Commodore Corp [I did not realize this when doing the original SSG in March 2023; it gives me more confidence in the sustainability of earnings]. Lines are up, mostly straight, and parallel. PTPM has trailed industry averages but leads peers while increasing from 5.2% in ’13 to 14.3% in ’22 with a last-5-year mean of 10.8%.

Over the last decade, ROE has increased from 6.0% in ’13 to 24.5% in ’22 with a last-5-year mean of 17.2. This trails peer and industry averages until ’21 when the latter two turn negative. Debt-to-Capital has been far below peer and industry averages, declining from 19.4% in ’13 to 2.2% in ’22 with a last-5-year mean of 3.9%. Interest Coverage is 338, Quick Ratio is 1.49, and the company gets a B+ Financial Strength rating from Value Line.

With regard to sales growth:

These short-term projections are not very helpful for a long-term forecast with ’23 expected to be down. Instead, I am slashing the historical growth rate in half and using 6.0% to be conservative.

With regard to EPS growth:

Two long-term estimates [Value Line report is a stub] are not much to go on [CNN Business gives a 404 error at the time of this report]. Neither can I find any corporate guidance published [which would probably be factored into analyst estimates anyway]. I am forecasting 50% below the low estimate at 11.0%. This is roughly one-third of the historical EPS growth rate, which seems conservative enough for me.

My Forecast High P/E is 15.5. Over the last decade, high P/E has trended down from 43.7 (’13) to 11.8 (’22) with a last-5-year mean of 24.0. The last-5-year-mean average P/E is 17.6. I am forecasting below the latter. Only ’22 and ’21 (15.3) are lower.

My Forecast Low P/E is 6.5. Over the last decade, low P/E has trended down from 20.8 (’13) to 6.7 (’22) with a last-5-year mean of 11.3. I am projecting conservatively below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $175.00. This is 39.3% less than the previous closing price and 2.5% less than the 52-week low.

These inputs land CVCO in the BUY zone with a U/D ratio of 3.7. Total Annualized Return (TAR) is 19.5%.

PAR (using Forecast Average—not High—P/E) is 11.6%, which is decent for a company of this size. If a robust 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 over the past 90 days (21 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 11.8%, 9.8%, 23.1, and 13.2, respectively. I am lower on all but EPS growth. Per Value Line, my forecast average P/E (11.0 vs. MS 17.7) is lower than each of the last 10 years except for ’22 (8.9).

MS high and low EPS are $38.30/share and $19.77/share compared to my $45.41 and $26.93. 14 of the studies have low EPS under $9.00, which suggests these studies used pre-acquisition data (no longer relevant). My high EPS is higher due to a higher EPS growth rate and because of a higher initial value (post-acquisition data).

MS LSPF of $179.50 is only 2.6% greater than mine: very much in the neighborhood. That does imply an MS low P/E of 9.1, however, in contrast to the above-stated 13.2. It’s also 31.2% below the $19.77 * 13.2 = $260.96 default value. At least this disconnect makes for a lower-risk bias [pulling the BUY zone lower].

Overall, I feel the current study has a robust MOS. The BUY zone extends to $307/share vs. MS $358.

The only thing that gives me pause is the stock being so close to its 52-week high. Depending on personal preference, I could opt to buy now or wait for an arbitrary pullback (e.g. 5%). The risk of waiting is that I may never get it, but that’s one benefit of doing several other stock studies!

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Agilent Stock Study (5-17-23)

Posted by on June 19, 2023 at 07:07 | Last modified: May 17, 2023 13:50

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $126.29. The first study is here.

M* writes:

     > Originally spun out of Hewlett-Packard in 1999, Agilent
     > has evolved into a leading life sciences and diagnostics
     > firm. Today, Agilent’s measurement technologies serve a
     > broad base of customers with its three operating segments:
     > life science and applied tools, cross lab (consisting of
     > consumables and services related to its life science and
     > applied tools), and diagnostics and genomics. Over half
     > of its sales are generated from the biopharmaceutical,
     > chemical, and advanced materials end markets, but it
     > also supports clinical lab, environmental, forensics,
     > food, academic, and government-related organizations.

Since 2015, this medium-size company has grown sales and earnings at annualized rates of 7.8% and 19.3%, respectively. Lines are mostly up and straight except for EPS declines in ’18 and ’20. PTPM has led peer and industry averages, trending higher from 11.9% in ’15 to 22.0% in ’22 with a last-5-year average of 19.3%.

ROE has been roughly even with peer and industry averages in climbing from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%.

Over the last decade, Debt-to-Capital has been less than peers and the industry with a last-5-year average of 32.5%. Interest Coverage is 19.1 and Quick Ratio is 1.4. Value Line rates Agilent an A for Financial Strength and M* rates them Exemplary for Capital Allocation.

I forecast long-term annualized sales growth of 5% based on the following:

I am forecasting at the bottom of the long-term range.

I forecast long-term annualized EPS growth of 9% based on the following:

I am forecasting at the low end of the long-term estimate range [mean of six: 12.0%]. To be conservative, I am projecting from the ’22 EPS of $4.18/share rather than Q1 ’23 EPS (annualized) of $4.43/share.

My Forecast High P/E is 31. Since ’15, high P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 39.1. I am forecasting less than all values except ’19 and also less than the last-5-year-average average P/E of 31.8.

My Forecast Low P/E is 23. Since ’15, low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 24.5. I am forecasting less than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast (LSPF) is the default [based on $4.18 EPS] value of $96.10. This is 23.9% less than the previous closing price and 7.0% less than the ’21 low.

Since ’15, Payout Ratio has ranged from 19.5% (’19) to 61.4% (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 22.6%. I am forecasting to the low side [at 19%] even though Value Line says positive things about the company’s ability to raise the dividend.

These inputs land Agilent in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.2%.

PAR (using Forecast Average—not High—P/E) is 7.3%, 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 only 34 studies done in the past 90 days (9 outliers plus my study 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 6.3%, 9.0%, 33.6, 24.8, and 29.1%. I am lower on four of five inputs and equal on EPS growth. Value Line’s future average annual P/E of 25.0 is lower than both MS (29.2) and mine (27.0).

With regard to other data, MS high and low EPS are $6.82/share and $4.30/share in contrast to my $6.43 and $4.18. Although my numbers are a tad lower, I don’t perceive significant MOS in this study. MS LSPF of $101.00 implies a Forecast Low P/E of 23.5 (versus the above-stated 24.8), is 5.3% less than the $4.30 * 24.8 = $106.64 default, and is 5.1% greater than mine.

Shares are a BUY under $121, but I want projected return closer to 15.0% and PAR doesn’t get me there right now.

I will look to re-evaluate this stock under $115/share.

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CMCSA Stock Study (6-5-23)

Posted by on June 16, 2023 at 06:41 | Last modified: June 5, 2023 12:05

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $39.19.

Value Line writes:

     > Comcast Corp. is a global media and telecommunications company.
     > Its Cable Communications segment (54% of adjusted ’21 revenues)
     > provides high-speed Internet, pay-TV, and voice services across
     > major U.S. markets under the Xfinity brand. NBCUniversal
     > includes: broadcast, cable, and streaming networks (NBC, Bravo,
     > USA, Peacock); TV/film studios (Universal Pictures,
     > DreamWorks); and theme parks (Universal Studios). Acquired
     > European pay-TV provider SKY plc.

Over the last decade, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.6% and 4.6% per year, respectively. Sales are up and straight. EPS is generally up and straight with an upward spike in ’17 (possibly related to TCJA) and YOY declines in ’18, ’20, and ’22.

I will move to exclude 2022 earnings. As part of its annual impairment assessment, the company wrote down a loss of $8.6B to reflect an increased discount rate and reduced estimated future cash flows due to macroeconomics in [acquisition target] Sky’s territories. It also recorded loss due to its investment in Atairos: a strategic company Comcast established in 2016 focused on investing in and operating companies across a range of industries and sectors. This resulted in a ’22 loss of $2.23B.

Excluding ’22, CMCSA has grown EPS at an annualized rate of 10.5% over the last 10 years.

Over the same time horizon (again excluding ’22), PTPM has ranged from 13.6% (’20) to 18.1% (’14 and ’17) with a last-5-year mean of 15.4%. This leads peer and industry averages but is trending slightly down.

Historical ROE has been in the low-to-mid teens since ’13 (excluding 39.8% outlier in ’17). The last-5-year mean is 14.8% (again excluding ’22): less than peer and industry averages. Debt-to-Capital over the last five years has averaged 54.7%, which is less than peer and industry averages.

Although Interest Coverage and Quick Ratio are only 4.9 (mean of M* and Value Line) and 0.64, respectively, M* gives a Standard rating for Capital Allocation: “we believe the firm’s balance sheet is sound and that shareholder returns are generally appropriate.” Value Line gives an A+ for Financial Strength, and M* categorizes the company with a Wide economic moat.

With regard to sales growth:

I forecast long-term sales growth of 1.0%.

With regard to EPS growth:

I am forecasting at the bottom of the long-term estimate range (mean of six: 10.6%). Last quarter, I was puzzled by the CNN Business long-term estimate of -5.6%. That may have been an error as it now shows +13.0%.

I will use ’21 EPS of $3.04/share as the initial value thereby discounting any growth occurring in ’22 (sans write-down for Sky). This is the same as projecting from the ’22 trendline ($3.35/share) with a 4.9% growth rate.

My Forecast High P/E is 16.0. Over the last decade, high P/E has ranged from 16.7 (’19) to 23.0 (’20) with a last-5-year mean of 19.4 (’17 and ’22 excluded due to downside and upside outliers of 8.9 and 43.1, respectively). I am forecasting below the range and below the last 5-year-mean average P/E of 16.3.

My Forecast Low P/E is 9.0. Over the last decade, low P/E has ranged from 11.8 (’19) to 15.4 (’20) with a last-5-year mean of 13.2 (’17 and ’22 excluded due to downside and upside outliers of 7.2 and 23.5). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $27.40 (based on initial EPS of $3.04/share). This is 30.1% less than the previous closing price and 3.5% less than the 52-week low.

Over the last decade, Payout Ratio has ranged from 13.3% (’17) to 89.3% (’22). Excluding those two outliers, the range is 28.1% – 40.4% with a last-5-year mean of 33.2%. I am forecasting conservatively at 28.0%.

These inputs land CMCSA in the HOLD zone with a U/D ratio of 2.5. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) is 8.5%, which is decent for a mega-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 over the past 90 days (my study and 49 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 4.7%, 11.7%, 19.3, 13.1, and 29.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 16.0, which is lower than MS (16.2) and higher than mine (13.0).

MS high and low EPS are $2.62/share and $1.32/share compared to my $4.26 and $3.04. Both MS numbers seem unreasonably low to me. I’m guessing many studies started with the ’22 EPS of $1.21/share that I excluded due to the one-time impairment charge. Value Line is doing the same in projecting 7.9% EPS growth/year from ’21 to ’27. MS using $2.62/share implies 2.4% EPS contraction/year from ’21 to ’27, which is probably an oversight.

MS LSPF of $24.50 is 10.6% less than mine: a more conservative projection. However, it implies a low P/E of 18.6 (versus the above-stated 14.4) and is 41.7% greater than the MS default of $1.32 * 13.1 = $17.29. I think such a large discrepancy expresses confusion about the initial value chosen.

PEG ratio is another value check I have recently begun to monitor. Zacks lists forward PEG as 0.87. A generally accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [for which I don’t have a number].

MOS seems robust in this study. I would look to invest under $37/share.

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FDS Stock Study (5-15-23)

Posted by on June 15, 2023 at 06:31 | Last modified: May 15, 2023 09:15

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $398.36.

M* writes:

     > FactSet provides financial data and portfolio analytics to the
     > Global investment community. The company aggregates data from
     > third-party data suppliers, news sources, exchanges, brokerages,
     > and contributors into its workstations. In addition, it
     > provides essential portfolio analytics that companies use to
     > monitor portfolios and address reporting requirements. Buy-side
     > clients account for 83% of FactSet’s annual subscription value.
     > In 2015, the company acquired Portware, a provider of trade
     > execution software. In 2017, it acquired BISAM, a risk
     > management and performance measurement provider. In 2022,
     > it completed its purchase of CUSIP Global Services.

This medium-size company has grown sales and earnings at annualized rates of 8.5% and 10.0%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. PTPM has trailed peer and industry averages while falling from 31.6% in ’13 to 24.1% in ’22. The last-5-year average is 27.5%.

ROE has trailed the industry while leading peers over the last decade tracing an “inverse-U” pattern with a last-5-year average of 43.2%. Debt-to-Capital has been lower than peer and industry averages while increasing from 0% in ’13 to 62.5% in ’22 with a last-5-year average of 51.2%.

Much of the debt results from the CGS acquisition from S&P Global. Interest Coverage is 10.5 and Quick Ratio is 1.75. M* assigns a Standard rating for Capital Allocation while Value Line gives an A+ grade for Financial Strength.

I forecast long-term annualized sales growth of 5% based on the following:

I am forecasting below the range.

I forecast long-term annualized EPS growth of 9% based on the following:

I am forecasting below the long-term-estimate range (mean of six: 10.7%).

My Forecast High P/E is 30. Over the last decade, high P/E has trended up from 25.1 to 48.3 (lowest value 21.9 in ’16). The last-5-year-average high P/E and average P/E are 38.1 and 31.7, respectively. I am forecasting below the latter.

My Forecast Low P/E is 20. Over the last decade, low P/E has trended up from 19.5 to 33.7 (lowest value 16.6 in ’16). The last-5-year average is 25.2 and the median over 10 is 20.6.

My Low Stock Price Forecast (LSPF) is the default value of $230.40. This is 41.1% less than the previous closing price and 21.7% less than the ’21 low.

Payout Ratio over the last 10 years has ranged from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 32.1%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with an U/D ratio of 0.8. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) is 3.1%, which is lower than the current return on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 6.7% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 205 studies done in the past 90 days (48 outliers plus my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.1%, 9.7%, 33.0, 22.8, and 30.4%. I am lower across the board. Value Line projects a future average annual P/E of 30.0, which is higher than MS (27.9) and higher than mine (25.0).

With regard to other data, MS high and low EPS are $17.49/share and $9.78/share in contrast to my $17.72 and $11.52. My numbers may be higher due to recent quarterly growth. MS LSPF of $255.10 implies a Forecast Low P/E of 26.1 (versus the above-stated 22.8), is 10.7% greater than mine, and is 14.4% greater than the $9.78 * 22.8 = $222.98 default. This seems somewhat aggressive and emphasizes whatever MOS appears to back my study.

I would look to re-evaluate FDS under $305/share.

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CBRE Stock Study (5-15-23)

Posted by on June 13, 2023 at 06:51 | Last modified: May 13, 2023 21:26

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $73.10. Previous studies on this stock can be seen here and here.

Value Line writes:

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

This large-size company has grown sales and earnings at annualized rates of 17.8% and 18.0%, respectively, for the last 10 years. Lines are mostly up, straight, and parallel except for sales in ’20 and EPS in both ’20 and ’22. PTPM has trended slightly lower over the last 10 years while edging out peer and industry averages. PTPM last-5-year average is 6.1%.

Aside from a downside outlier in ’20 (11.4%), ROE has ranged from 16.8% in ’22 to 22.9% in ’19 over the last 10 years to beat peer and industry averages. The last-5-year average is 19.2%. Debt-to-Capital has been trending down since ’15 with a last-5-year average of 35.6%. This is about even with the industry and slightly higher than peer averages. Per Value Line, Interest Coverage is 25 and Financial Strength gets an A rating. M* assigns a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 2% based on the following:

I am forecasting below the range.

I forecast long-term annualized EPS growth of 3% based on the following:

I am forecasting near the bottom of the long-term-estimate range (mean of four: 9.2%). While this is conservative, I am projecting from the ’22 EPS of $4.29/share rather than Q1 ’23 of $3.48/share (annualized).

My Forecast High P/E is 19. Over the last decade, high P/E has ranged from 16.3 (’18 and ’19) to 30.5 in ’20 with a last-5-year average of 21.8. I am forecasting near the bottom of the range (only ’18 and ’19 are lower).

My Forecast Low P/E is 10. Over the last decade, low P/E has ranged from 10.0 in ’19 to 21.0 in ’13 with a last-5-year average of 12.3. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default value of $42.90. This is 41.3% less than the previous closing price and 26.9% less than the ’21 low.

These inputs land CBRE in the HOLD zone with an U/D ratio of 0.7. Total Annualized Return (TAR) is 5.3%.

PAR (using Forecast Average—not High—P/E) is -0.3%, which is not acceptable. 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 52 studies done in the past 90 days (my study along with 11 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 7.0%, 9.6%, 21.0, and 12.7. I am lower across the board. Value Line projects a future average annual P/E of 15.0, which is lower than MS (16.9) and just higher than mine (14.5). Based on the low sample size, MOS behind this study seems robust due to growth rate.

With regard to other data, MS high and low EPS are $6.34/share and $3.13/share in contrast to my $4.97 and $4.29. My low EPS may be higher due to projection from ’22 EPS (higher than Q1 ’23), but I’m not really sure why $3.13 is that low. My high EPS is lower due to my lower forecast growth rate. MS Low Stock Price Forecast of $44.20 implies a Forecast Low P/E of 14.1 (versus the above-stated 12.7), is 3.0% less than mine, and is 11.2% greater than the $3.13 * 12.7 = $39.75 default.

I would look to re-evaluate the stock under $55/share.

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ADUS Stock Study (5-29-23)

Posted by on June 10, 2023 at 12:54 | Last modified: May 30, 2023 13:34

I recently did a stock study on Addus Homecare Corp. (ADUS) with a closing price of $88.81.

M* writes:

     > Addus HomeCare Corp is engaged in the provision of in-home personal
     > care services. It operates through the following segments: Personal
     > care segment, which is a key revenue driver, provides nonmedical
     > assistance with activities of daily living, primarily to persons who
     > are at risk of hospitalization or institutionalization, such as the
     > elderly, chronically ill and disabled. The Hospice segment provides
     > physical, emotional and spiritual care for people who are terminally
     > ill and their families. Its Home health segment provides services
     > that are primarily medical in nature to those individuals who may
     > require assistance during an illness or after surgery.

Over the last decade, this small-size company has grown sales and EPS at annualized rates of 15.9% and 13.8%, respectively. Lines are mostly up, straight, and parallel except for EPS dip in ’15. PTPM has been up and down—leading peers but trailing the industry—with a last-5-year average of 5.6%.

Over the last decade, ROE has led peer and industry averages despite trending down from 9.8% to 7.5% with a last-5-year average of 7.0%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year average of 21.1%. Quick Ratio is 1.6 and Interest Coverage is 7.8 per M*. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 6.0% based on the following:

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 11.0% based on the following:

I am forecasting below the long-term-estimate range (mean of five: 13.9%). I am using ’22 EPS of $2.84/share as the initial value rather than Q1 ’23 EPS of $3.10 (annualized).

My Forecast High P/E is 36. Over the last 10 years, high P/E has ranged from 27.3 in ’14 to 56.7 in ’20 with a last-5-year average of 50.4. The last-5-year-average average P/E is 37.9. I am forecasting below that.

My Forecast Low P/E is 22. Over the last 10 years, low P/E has ranged from 7.0 in ’13 to 32.0 in ’19 with a last-5-year average of 25.4. I am forecasting just below the median (22.4).

My Low Stock Price Forecast (LSPF) is the default value of $62.50 (based on initial EPS of $2.84/share). This is 29.6% less than the previous close and 8.9% less than the ’22 low.

These inputs land ADUS in the BUY zone with an U/D ratio of 3.2. Total Annualized Return (TAR) is 14.2%.

PAR (using Forecast Average—not High—P/E) is 9.3%, which 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 158 studies over the past 90 days (my study and 52 outliers excluded), averages for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 9.7%, 13.0%, 39.2, and 24.9, respectively. I am lower across the board.

MS high and low EPS are $5.40/share and $2.85/share in contrast to my $4.79 and $2.84. My high EPS is probably lower due to a lower growth rate.

MS LSPF of $70.70 is consistent with the $2.85 * 24.9 = $70.97 default value. It’s also 13.1% greater than mine, which along with my lower inputs lend support for a robust MOS behind the current study.

PEG ratio is another value check I am just starting to monitor. My forward PEG is 29 / 11 = 2.6. A generally-accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [which I don’t have].

ADUS shares are a BUY under $89.

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ALGN Stock Study (5-11-23)

Posted by on June 9, 2023 at 06:53 | Last modified: May 11, 2023 15:02

I recently did a stock study on Align Technology Inc. (ALGN) with a closing price of $305.26.

CFRA writes:

     > Align Technology, Inc. (ALGN) is a global medical device company
     > engaged in the design, manufacture, and marketing of Invisalign
     > clear aligners and iTero intraoral scanners and services for
     > orthodontics, and restorative and aesthetic dentistry. ALGN
     > also provides exocad computer-aided design and computer-aided
     > manufacturing (“CAD/CAM”) software for dental laboratories and
     > dental practitioners. ALGN’s products are intended primarily
     > for the treatment of malocclusion or the misalignment of teeth.

This medium-size company has posted annualized growth of 23.8% and 25.0% for sales and EPS (excluding ’20, which is an upside outlier that boosts the latter growth rate to 30.3%), respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for a spike in ’20 EPS and ’22 EPS, which drops off considerably. PTPM has mostly led the industry while falling behind peers in ’19 with a last-5-year average of 20.8%.

ROE leads peer and industry averages with a last-5-year average (excluding ’20) of 24.4%. The same holds for Debt-to-Capital with a last-5-year average of 2.7% (per Value Line, the company has no long-term debt). Value Line gives ALGN a Financial Strength rating of B++ and M* a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 6% based on the following:

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 10% based on the following:

As CFRA recuses itself from that longer-term estimate, I believe YF’s long-term estimate to also be NMF as an extreme outlier. I am forecasting conservatively below the long-term-estimate range (mean of five: 17.0%).

An initial value discussion awaits since EPS numbers are discrepant. The ’22 10-K shows a drop from $9.69/share in ’21 to $4.61/share in ’22 (d52.4%). Value Line, however, shows a drop from $9.79/share in ’21 to $7.22/share in ’22 (d26.3%) without footnoting any nonrecurring losses. CFRA shows a drop in normalized EPS from $11.22/share in ’21 to $7.76/share in ’22 (d30.8%) without giving any explanation as to what is being omitted.

And suddenly, YF’s 43.3% doesn’t look so outrageous if done from ’23 Q1 EPS ($4.05/share annualized) because $24.47 in ’27 is about even with the extrapolated trendline (with ’20 EPS of $22.41/share excluded).

For lack of any better idea and a need to maintain a minimum high EPS for a valid study, I am forecasting 10% EPS growth. As mentioned above, this is below the long-term-estimate range. I will project from the trendline, however, rather than the last quarterly or annual EPS. Furthermore, I will exclude ’21 EPS. This lowers the ’22 trendline from $8.69/share to $7.37/share.

My Forecast High P/E is 30. Over the last 10 years, high P/E ranges from 24.3 (’20) to 142 (upside outlier in ’22) with a last-5-year average of 60.5. Excluding ’20 as a downside outlier, the next-lowest value is 36.8 (’14). I am forecasting conservatively.

My Forecast Low P/E is 24. Over the last 10 years, low P/E ranges from 5.7 in ’20 to 51 in ’21. I would exclude both as outliers. The last-5-year average is then 35.5. The second-lowest P/E is 24.4 in ’14. I am forecasting just below the latter.

My Low Stock Price Forecast (LSPF) is $176.90. Zero growth is assumed beyond the $7.37/share derived above. This is 42.0% below the previous close and 2.8% above the 52-week low.

These inputs land ALGN in the HOLD zone with an U/D ratio of 0.9. Total Annualized Return (TAR) is 7.0%.

PAR (using Forecast Average—not High—P/E) is 3.1%, which is less than the current risk-free rate. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 7.0% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 132 studies done in the past 90 days (my study along with 29 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 13.3%, 15.0%, 47.9, and 28.7. Despite being lower on all inputs, my EPS override makes comparison difficult. Value Line projects a future average annual P/E of 26.5, which is much lower than MS (38.3) and lower than mine (30.0). The former is ~50% greater than Value Line, which makes me wonder if other studies were as confused about this company as I am.

With regard to other data, MS high and low EPS are $8.53/share and $4.55/share in contrast to my $11.87 and $7.37. MS LSPF of $141.90 implies a Forecast Low P/E of 31.2 (versus the above-stated 28.7), is 19.8% less than mine, and is 8.7% greater than the $4.55 * 28.7 = $130.59 default.

At first, this encounter with ALGN was much easier than my original 11/8/22 stock study because the negative analyst forecasts have now turned positive thereby facilitating the math. Ultimately though, this study proved to be every bit as much of a challenge due to confusion about what different sources are excluding and why.

The stock has rallied 77.4% from [what is currently] the 52-week low. I wouldn’t expect any stock that has rallied this much to be near the BUY zone, and this certainly is not. I would look to re-evaluate under $240/share.

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BKNG Stock Study (5-10-23)

Posted by on June 7, 2023 at 07:05 | Last modified: May 10, 2023 15:07

I recently did a stock study on Booking Holdings Inc. (BKNG) with a closing price of $2,634.91.

M* writes:

     > Booking is the world’s largest online travel agency by revenue,
     > offering booking and payment services for hotel and alternative
     > accommodation rooms, airline tickets, rental cars, restaurant
     > reservations, cruises, experiences, and other vacation packages.
     > The company operates a number of branded travel booking sites,
     > including Booking.com, Agoda, OpenTable, and Rentalcars.com,
     > and has expanded into travel media with the acquisitions of
     > Kayak and Momondo. Transaction fees for online bookings account
     > for the bulk of revenue and profits.

This large-size company has grown sales and EPS at annualized rates of 7.2% and 4.9%, respectively, over the last decade (’20 excluded due to COVID-19). Lines are mostly up, straight, and parallel with the exception of slight EPS softness in ’16-’17 (goodwill impairment charge with EPS subsequently catching back up to previous trendline in ’18) and ’21 (lower sales and EPS followed by healthy rebound in ’22). PTPM has been higher than peers and the industry with a last-5-year average of 23.5% (no exclusions). Also higher than peers and the industry is ROE with a last-5-year average of 43.8%.

For most of the last 10 years, Debt-to-Capital has been lower than industry averages while roughly equal to peers. The last-5-year average is 65.8%. Current and Quick Ratios are ~1.5 and Interest Coverage is 10.8 per M*. M* also rates Capital Allocation as Exemplary given that the $6.3B debt to mature within the next five years is much less than the projected $30B+ FCF over the same period. Value Line gives a B++ grade for Financial Strength.

I forecast long-term annualized sales growth of 5% based on the following:

I am forecasting just below Value Line’s long-term estimate (includes zero growth from ’24-’27, which seems good for a conservative projection but puzzling otherwise).

I forecast long-term annualized EPS growth of 15% based on the following:

I am forecasting below the long-term-estimate range (mean of six: 20.0%).

My Forecast High P/E is 20. Excluding upside outliers of 1547 in ’20 and 95.4 in ’21, over the last 10 years high P/E has ranged from 18.6 in ’19 to 44.1 in ’17 with a last-5-year average of 27.0. Only ’19 is lower than my [conservative] forecast.

My Forecast Low P/E is 15. Excluding upside outliers of 769 in ’20 and 66.1 in ’21, over the last 10 years low P/E has ranged from 14.6 in ’19 to 31.1 in ’17 with a last-5-year average of 18.4. Only ’19 is lower than my [conservative] forecast.

My Low Stock Price Forecast (LSPF) is the default value of $1,529.50. This is 42.0% less than the previous close and 5.4% less than the 52-week low.

These inputs land BKNG in the HOLD zone with an U/D ratio of 1.3. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) is 6.4%, which is less than I want to see. 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 149 studies done in the past 90 days (my study along with 19 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 11.6%, 14.5%, 29.7, and 20.0. I am lower on all inputs but EPS growth (15.0%). Value Line projects a future average annual P/E of 20.0, which is lower than MS (24.9) and higher than mine (17.5).

With regard to other data, MS high and low EPS are $150.63/share and $66.18/share compared to my $205.10 and $101.97. ’22 EPS of $76.35 at least partially explains this as a much lower initial value for projection than the $101.97/share for Q1 ’23. MS LSPF of $1,395.40 implies a Forecast Low P/E of 21.1 (versus the above-stated 20.0), is 8.8% lower than mine, and is 5.4% higher [more aggressive] than the $66.18 * 20.0 = $1,323.60 default.

I don’t see much MOS behind this study and in retrospect, I would do two things differently. First, as recovery from COVID-19 is underway but not complete, analyst estimates may remain elevated (catch-up to trendline). [As noted above] Value Line long-term EPS estimate starting in ’23 compared to ’22 suggests an EPS growth rate of 12% rather than 15%. Second, Q1 ’23 EPS (annualized) is much greater than ’22. As a conservative measure when I see such leap, I could use the previous (lower) value. These modifications would boost MOS behind this study at the cost of leaving the stock even farther from the BUY zone. Either way, with BKNG up ~35% in the last six months it’s not one I should expect to be near the BUY zone anyway.

I would look to re-evaluate the stock under $2,170/share.

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GOOG Stock Study (5-9-23)

Posted by on June 5, 2023 at 06:38 | Last modified: May 9, 2023 10:33

I recently did a stock study on Alphabet, Inc. (GOOG) with a closing price of $108.24. A previous study on this company can be seen here.

M* writes:

     > Alphabet is a holding company. Internet media giant
     > Google is a wholly owned subsidiary. Google generates
     > 99% of Alphabet revenue, of which more than 85% is
     > from online ads. Google’s other revenue is from sales
     > of apps and content on Google Play and YouTube, as
     > well as cloud service fees and other licensing
     > revenue. Sales of hardware such as Chromebooks, the
     > Pixel smartphone, and smart home products, which
     > include Nest and Google Home, also contribute to other
     > revenue. Alphabet’s moonshot investments are in its
     > other bets segment, where it bets on technology to
     > enhance health (Verily), faster internet access to homes
     > (Google Fiber), self-driving cars (Waymo), and more.

This mega-sized (revenue > $50B) company has grown sales and EPS at annualized rates of 19.2% and 13.2% per year, respectively, for the last decade. Revenue is up and straight while earnings from 2013 did not show growth until 2018 and beyond. Excluding ’21, which was an upside outlier, PTPM has averaged 25.2% for the last five years, is steady over the last 10, but has solidly trailed peer and industry averages.

Over the last five years, ROE averages 18.4% while trailing peer and industry averages. Debt-to-Capital, under 11% for the last decade, averages 6.6% for the last five years and is lower than peer and industry averages. Interest Coverage and Quick Ratio are 200 and 2.2 while M* and Value Line give Exemplary and A++ grades for Capital Allocation and Financial Strength.

I forecast long-term annualized sales growth of 8% based on the following:

I am projecting below the two long-term estimates.

I forecast long-term annualized EPS growth of 11% based on the following:

I am forecasting below the long-term-estimate range (mean of six: 15.3%).

My Forecast High P/E is 25. High P/E has ranged from 27.1 (’21) to 34.1 (’15) since 2014 with a 5-year average of 28.9. The trend has been down. I am forecasting below the range.

My Forecast Low P/E is 15. Low P/E has trended down from 24.0 in ’14 to 15.1 in ’21 with a last-5-year average (excluding the ’17 upside outlier of 42.9) of 18.8. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is $70.60, which is default given the most recent EPS (at $5.04/share, Q3 ’22 is the third straight quarter in decline). This is 34.8% less than the previous close and 15.4% less than the 52-week low.

These inputs land GOOG in the HOLD zone with an U/D ratio of 2.8. Total Annualized Return (TAR) is 14.4%.

PAR (using Forecast Average—not High—P/E) is 8.9%, which is less than I want to see. 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 674 studies done in the past 90 days (my study along with 84 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 10.0%, 13.2%, 27.2, and 18.6. I am lower across the board. Value Line projects a future average annual P/E of 25.0, which is higher than MS (22.9) and much higher than mine (20.0). MOS backing the current study seems robust.

With regard to other data, MS high and low EPS are $8.53/share and $4.55/share compared to my $8.49 and $5.04. I am surprised the former is not even greater than mine given a 2.2% higher MS projected growth rate. I’m not exactly sure where the $4.55 comes from, either. By default, earlier studies should use a low EPS equal to or higher (Q2 ’22: $5.38/share) than mine. MS LSPF of $79.30 implies a Forecast Low P/E of 17.4 (versus the above-stated 18.6), is 12.3% higher than mine, and is 6.3% lower than the $4.55 * 18.6 = $84.63 default.

I would look to buy GOOG under $106/share.

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G Stock Study (5-24-23)

Posted by on June 2, 2023 at 07:00 | Last modified: May 25, 2023 10:38

I recently did a stock study on Genpact Ltd. (G) with a closing price of $38.13.

M* writes:

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

This medium-size company has grown sales and EPS at annualized rates of 8.5% and 8.9% over the last decade. Lines are mostly up, straight, and parallel except for EPS dips in ’14 and ’22. PTPM has remained above peer and industry averages, declining from 14.4% in ’13 to 10.6% in ’22 with a last-5-year average of 11.4%.

Over the last 10 years, ROE slightly trails the industry while beating peer averages with a last-5-year mean of 18.9%. Debt-to-Capital is lower than industry averages and about even with peers despite climbing from 33.4% in ’13 to 48.2% in ’22 with a last-5-year mean of 50.3%. Quick Ratio is 1.7 and Interest Coverage is 9.2. Value Line rates the company B++ for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 1.4x on a TTM basis.”

I forecast long-term sales growth of 7.0% based on the following:

I am forecasting just below the long-term estimate.

I forecast long-term annualized EPS growth of 8.0% based on the following:

I am forecasting below the long-term-estimate range (mean of five: 9.6%). My initial value is the ’22 EPS of $1.88/share rather than Q1 ’23 EPS of $1.94 (annualized).

My Forecast High P/E is 22. Over the last 10 years, high P/E has trended up from 22.0 in ’13 to 28.7 in ’22 with a last-5-year average of 27.7. I am forecasting conservatively at the bottom of the range. The last-5-year-average average P/E is 22.5.

My Forecast Low P/E is 15. Aside from ’20 (downside outlier at 12.4), low P/E over the last 10 years has trended up from 15.8 in ’13 to 20.0 in ’22 with a last-5-year average of 18.6 (outlier excluded). I am forecasting conservatively below the range.

My Low Stock Price Forecast (LSPF) is the default [using $1.88/share] value of $28.20. This is 26.0% less than the previous closing price and 21.2% less than the 52-week low.

Since dividend payment was instituted, Payout Ratio has increased from 17.9% in ’17 to 26.6% in ’22 with a last-5-year average of 23.3%. I am forecasting near the bottom of the range at 18.0%.

These inputs land G in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is 7.0%, 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 only 27 studies (my study and 12 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 8.0%, 10.0%, 25.3, 16.6, and 21.3%. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is lower than MS (21.0) and mine (18.5).

With regard to EPS, MS high and low are $3.04/share and $1.83/share in contrast to my $2.76 and $1.88. My high EPS is lower due to forecast EPS growth rate.

MS Low Stock Price Forecast of $30.20 is 7.1% greater than mine and in-line with the $1.83 * 16.6 = $30.38 default value.

MOS in this study seems consistent. Come to think of it, everything about this study has been “consistent.” Maybe that’s something to expect for a company with an Earnings Predictability rating (Value Line) of 100.

G is a BUY under $36/share.

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